Why Unemployment Rate is so High in America?

The current period of his tenure can be said as the worst for Barack Obama. Just a month ago, the United States as a nation faced a reduction in its debt credit and now the stagnation of American economy is burdening the administration. US economy has registered a growth of less than one percent in this quarter while the unemployment rate is still consistent at 9.1 percent.

The American government predicted a change of fortune as a result of those huge stimulus packages which were announced earlier. Yet, the news is depressing even now when the private sector has certainly added a good number of new jobs in the market, yet the rate is too slow. Major Job creation has been registered in Health and education industry as both are creating around 30,000 jobs a month. Yet, the unemployment rate is still stagnant and American economy is growing at a rate that cannot be termed as a recovery but may be feared as a slow speed towards double dip recession.  If the rate of job creation doesn’t improve, it would be hard for America to ever achieve 100 percent employment for the growing population.  

The major reason of failure of government policies to tackle the recession is the futility of the government to create traditionally ‘safe forms’ of jobs which could have been created in government services by the federal and state governments. The huge automobile and heavy industry is still suffering huge losses so government isn’t able to create manufacturing works. The banks are already failing to contain their current workforce and hence are unable to produce significant jobs. The housing industry is in no mood to rescue this time and nothing new seems to be working including the experimented boost for green technology.

This organized structure of the United States is certainly unable to provide any more jobs and as a result, Americans are suffering stagnation in job creation. Now no vocational course can guarantee an American youth to attain a job and gaining a MBA degree from Wharton may also fail to provide a much desired job in a company that offers six-figure salary and a car.

It is very important to accept the faulty economic policies and unless people do not realize these big mistakes, government will keep promoting similar suggestive solutions for a recovery which will never work while they will certainly hurt deeper.

Government isn’t in a position to promise a recovery and the US government should now play a positive role in closing the industries that failed despite of all economic aids and subsidies.

Subsidies and Malinvestment is the Major reason for Unemployment

The majorly subsidized industries of America include farming (especially the industrial farming), finance (bailouts for investment banks), heavy manufacturing (airplanes, automobiles and steel industry), energy sector (coal, oil, and green technology), and obviously the military constructional contracts.

Subsidies are always introduced with good intentions, however, these subsidies reduces the immunization of industries due to the lack of competitiveness which distorts productivity and prices of subsidized products. At the end, these subsidies not only weaken the particular sector but also harm the overall economy of the country playing games with taxation and subsidies.

Let us take the example of automobile industry which is highly subsidized and protected. Suppose 100 workers were producing cars in 1960s and the global population was willing to buy each car produced by those 100 workers. This allowed a job security for all those 100 workers and a promise of wage increments and bonuses if demand grows. However, the demand fell and the global requirement of American cars could be met by only 50 workers. Yet, the government didn’t reduce the number of workers; rather it experimented and subsidized the automobile production. Because of these subsidies, people thought that everything is ok and there is actually a need of 100 workers in automobile sector while it was not. This malinvestment in form of subsidies and stimulus kept hurting the overall economy of the United States and in 2011, now there is a position when out of those 100 workers, 70-80 have lost their jobs which initially were meant to be a loss of just 50 jobs.

Subsidies may seem to be fruitful in short period, but in long term, the consequences are not sweet for anybody. The current growth of jobs in education and health care sector is also a similar procedure which will hurt Americans in long run. How will it be possible for the already weakening health sector to meet the increasing costs and the required services of the growing aged population?  

Why is it difficult to decrease Unemployment?

The current world is facing one of the most astonishing technological advancement in human story and this turn around took place since at early 1990’s. Within this period of time, technological advancement increased the productivity of American workers with a great pace. Now US manufacturing units doesn’t need the labor they needed 20, or even 10 years ago. To hurt the backbone, the global labor is also available at cheaper rates and hence a number of jobs are being slowly siphoned off to international workers who are willing to work at a cost of a fraction of what a US labor would demand. This picture is not going to change any time soon, and it may become gloomier.

During the last decade, when this problem actually raised its head, the Bill Clinton administration and later on Bush administration decided to play it down by supporting a fake boom bubble in housing market. The housing bubble was meant to burst, yet it kept home construction workers busy as they enjoyed the gifts presented by the local, state and federal government in form of subsidies. They enjoyed huge potential of job creation along with cash, stock markets and pension funds gaining, and allowed people to develop wealth solely by owning a house.  This whole sector was, by definition, completely unproductive, unnecessary and malinvested.

However, these subsidies and stimulus packages played havoc in an indirect manner by snatching the strength of young Americans to fight against the global competitiveness. In order to compete in current tech-based US economy, one must be highly skilled and technically educated. This is not a specific technical requirement, such as being a skilled welder.  It is a general technical requirement:  processing data and information, mastery of language and writing, and understanding how to use technological developments to improve your productivity. 

The situation is same in all sectors but such skills are necessary most in those sectors that are destined to drive the economic growth in the future. As for example, anyone running a business would not hire anybody who couldn’t use Microsoft Excel. These technological tools are nothing new and they are available and being worked upon since at least 20 years. If a person is still unable to use these, then this suggests that the person is not apt for the current business environment. The dilemma is the unemployed who lost jobs in numbers are from housing sector, heavy machinery sector and other constructional sectors. Because of the subsidies provided, they always felt a sense of job security and social security. But now, things have changed and they do not possess the skills that may help them to overcome the changes and compete.

Conclusion:

Such is the poison of subsidies, it not only makes you make believe as if everything is ok while the danger looms on your head, but it also makes you impotent to face that danger.

India should learn from the US economical debacle that SUBSIDIES NEVER WORK, Stimulus Never works and the only way to avoid Boom-bursts-inflation and high price rise is to reduce taxation to minimal and to provide No Subsidy for any sector including agriculture, military, security, health care, education, energy or any other subsidized sector. Indian government should take initiative to reduce dependence on Fiat currency and should improvise gold standard. Indian government must remove all control from Gasoline and LPG prices immediately and should take away the ill-policies of Education for All and No Child Left Behind, Mid-Day Meal etc, Indians should oppose and avoid the upcoming Universal Health Bill otherwise India will also suffer same consequences as are now being faced by the USA, Greece, UK and other European countries. Save your future, Minimize government and abolish subsidies, reduce taxation, let people earn their living by their own self.