Tackling Global Challenges and Developing an Ethical Perspective

Module Code – MBAM954

Module Name – Tackling Global Challenges and Developing an Ethical Perspective

Candidate Number – 062558

Word Count – 2878

Page Numbers – 1 to 14

The Long View

Economic growth is considered the most important aspect of the welfare of a country. The economic development of a country can be measured by several determinants like industrialization, agriculture, population and many others but rate of unemployment is the most important as it can have a direct negative impact on the whole economy. A country’s Gross Domestic Product (GDP) can be affected by an increase in the level of unemployment of that country. Okun’s Law, 1962 states that an economy experiences a 3 percent point decrease in GDP for every 1 percent point increase in the unemployment. Even though a high rate of unemployment and underemployment can lead to various social and economic problems in a country it is not given as much importance as it should.

The aim of this essay will be to throw some light on the problem of unemployment, how it grows at a faster rate due to manmade problems and why it should be controlled because apart from having effects on our economy and its growth it also has serious implications on the people of our society. Understanding this I hope will make us give more importance to solving this problem.

“A man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under the sun.”   –  (Carlyle, 1842, p. 24)

The International Labour Orgainsation (ILO) defines the unemployed as people from the active population without work but who are available and seeking work including people who have lost their jobs and those who have left their jobs voluntarily (World Development Indicators, 2014, p. 37). Unemployment has always been a problem we have had to overcome and is not something that has developed recently. The English

Poor Laws of the 16th Century is a very good example of this. The earliest attempt to measure unemployment was the Census in 1880. (Origins of the Unemployment Rate: The Lasting Legacy of Measurement without Theory , 2011, p. 2). Initially the primary occupation of most people was agriculture and so the economy was more stable. This means that the rate of unemployment mostly fluctuated on a year to year basis based on weather. One of the first few instances where a large percentage of the people in an economy were affected by unemployment for a reason that was probably man-made dates back to the 17th century. An example of this would be the South Sea Bubble in 1720. From the 18th century onwards with multiple factories coming into the picture, it became more common for economies to go into cycles of booms and slumps thus increasing the level of unemployment. The same phenomenon also started occurring on a global level. The issue of mass unemployment caused by these recessions started increasing the level of threat unemployment posed to our economy. Apart from the growth of industries this period also saw changes in agricultural methods like seed drill planting which reduced the workforce required for agriculture. The Enclosure Acts also came into play which resulted in small scale farmers losing their land to wealthy land lords. These issues forced the farmers to leave their towns and move to cities in search of jobs in factories which were rapidly multiplying in number as part of the Industrial Revolution. This led them to becoming a part of the group of people who could potentially be affected by recession and hence were still in threat of losing their jobs / being unemployed.

Types of Unemployment and their Levels

The type of unemployment explained above, i.e. when individuals lose their jobs as a result of a downturn in demand it is called Cyclical Unemployment and is caused by a demand deficient. If this decline in persistent and the unemployment becomes long

term it is called Keynesian Unemployment. This theory has its roots in the publication ‘The General Theory of Unemployment, Interest and Money’ by John Maynard Keynes’ (Keynes, 1936). Various supply side factors like higher rates of unemployment during a particular season, structural changes in the economy like closing of mines, a person trying to find a job after graduation, job opportunities being available but in an area an individual cannot relocate to or just a choice to not work also contribute to the rate of unemployment. These are considered natural factors of unemployment. It is important to understand that while unemployment is also caused by natural factors it is usually higher when it is caused by the demand deficient factors. This can also be seen in the graph explained below.

Given below is a graph of the percentage of unemployment in the United Kingdom from 1971 to 2016. The idea behind choosing such a long timeline is to be able to cover both different periods of recession and otherwise.

[pic 1]

From this we infer that the spikes in unemployment in the years 1981, 1991 and 2011 caused by recession show demand deficient unemployment and are way higher than the unemployment that occurs during a period of economic growth where only the natural factors of unemployment are in play (Office for National Statistics, 2018).

Implications of Unemployment on Business

1. Spending Power

This is one of the most obvious effect of unemployment. We can safely say that the spending power of an individual without a steady income will decrease. We should also keep in mind that this would also mean a decrease in the spending capacity of his / her This will also lead to the loss of tax revenue. People not being able to spend will in turn hinder the economy from growing.

1. Financial Costs to the Government

Another effect of unemployment on the economy is that when the rate of unemployment in a country rises the amount of money to be paid by the government as compensation also rises.

Below is a chart showing us the monthly unemployment benefits paid in the United Kingdom from 2013 – 2104 to 2018 – 2019 (in million GBP).

[pic 2]

Looking at the chart we can clearly say that the problem of unemployment turns out to be expensive for a government and the amount spent reduces as the unemployment rates reduce (Public Expenditure Benefits, 2018, p. 76). This can also be compared with the details given in the previous graph where we can see that the percentage of unemployment has been reducing from 2014. Increased spending on unemployment