Solutions to the Unemployment Problem

Much of the discussion on finding solutions to the unemployment problem has centered on the pivotal role of faster economic growth and cuts in real wages. Faster economic growth is viewed as a means of generating more jobs. Cuts in real wages are a reaction to the view that through their demands for higher wages, some groups of workers have priced themselves out of a job. How much growth and how large a fall in real wages would be required to reduce the size of the unemployment problem both remain matters for debate. Ottosen and Thompson (1996) suggest an overhaul of the National Labor Relations Act in the United States as a way of preventing unions from delivering the monopolistic wages and fringe benefit premiums that raise business costs and lead to unemployment. Such proposals are often very difficult to implement. Simulations by Guy Debelle and James Vickery (1998) for the Australian labor market are suggestive of manageable wage cuts only if the unemployment target is not set too low. Such advice is not very encouraging. Moreover, many researchers believe that the levels of economic growth required to make a major difference to the unemployment problem are unlikely to be sustained by most economies.

The United States and other countries could take other approaches to help reduce their unemployment rates (Ottosen and Thompson 1996). First, the methods of accumulation and dissemination of information on available jobs and workers could be improved. Ottosen and Thompson have suggested following the Swedish model, in which job centers have a nationwide, integrated database of jobs, employers, and available employees. This type of database could reduce the time spent by an average worker on the unemployment roll and thus reduce the unemployment rate. Second, unemployment agencies could tighten their job search and job acceptance requirements. Third, there could be improvements to the education and training provided to young people, with a greater focus on vocational skills. Finally, countries need to ensure that their welfare systems do not provide disincentives to work. Australia, for example, has strengthened the "Mutual Obligation" requirements (e.g., taking part in Work for the Dole projects) that eligible job seekers must meet in order to avoid loss of part of their income support.

There may also be a role for unemployment programs that target various groups of jobless persons. Carol West (1994) surveyed the unemployment programs aimed at reducing cyclical, frictional, seasonal, and structural unemployment in the United States. Some of these programs aim to change people to match existing jobs while others create jobs to match existing worker skills. The change in focus over time and the short duration of many programs make evaluation difficult. Many programs appear to do little more than reorder the line of unemployed people, though obviously they have the potential to fulfill an equity function in the labor market. John Piggot and Bruce Chapman (1995) suggest that labor market programs can be a cost-effective means of managing the pool of unemployment.

A number of other solutions to the unemployment problem have been advanced in the literature. For example, work sharing, early retirement, and reduced migration have been discussed. These policies affect the labor market by reducing the supply of labor. However, they have not won a great deal of support among economists.

About The Author

 Walter Fritz was born of German parents in Shanghai, China, in 1927. He studied mechanical engineering in Spokane, Washington, USA, and now lives in Argentina. He worked in the manufacturing engineering field from 1953 until 1985, and spent the last 20 years of his career in the automotive industry. He is retired now and dedicates his time to the study of intelligent systems, and to tennis and swimming. He was a professor in the artificial intelligence (AI) laboratory of the "Instituto Tecnologico Buenos Aires". He has given more than 30 lectures on subjects related to artificial intelligence, published two scientific papers and co-authored an artificial intelligence book, written in Spanish. He has published an e-book on intelligent systems in the Internet, in both English and Spanish. Now working on an experimental robot (For continuos reading, like a book - do not enter here now). called "Robby",