Sample Essay on Impact of the recent reduction in rates of unemployment in the U.S

Economic Essays

Impact of the recent reduction in rates of unemployment in the U.S

A recent report by the Bureau of Labor Statistics in the United States of labor shows that as at January 2016 the rate of unemployment had reduced to 4.9 percent. This resulted from the additional 151,000 new jobs and the wages have increased by a significant 0.5percent in average hourly earnings. The falling rate of unemployment has been a source of a tighter job market forcing companies to increase their wages in order to attract and retain employees. It is also going to affect the rate at which the economy grows in different ways. This essay looks at the effect of reducing rates of unemployment in an economy and the labor markets.

The increase in the number of jobs was attained by increased hiring in the retail, food services, health care, and manufacturing sectors while it declined in educational services, transportation, warehousing and mining. According to this report, the total number of jobs added in January reduced to 151,000 jobs from a figure of 262,000 jobs in December 2015, but the pace is still considered good enough to absorb new job seekers. These new changes in the job market are a good indication that the U.S economy was performing well despite the challenges in the stock market and higher risks in the emerging markets. Moreover, the economic recovery that started in the past six and a half years ago has contributed greatly to a better paycheck for employees.

The increase in job creation in various industries will have different impacts on the economy and the labor markets. Firstly, most of the companies will be forced to increase their labor costs to keep up with the competitive labor market, and this could take a huge part of their corporate profits. Higher demand in the labor market is likely to experience supply shortages, increasing competition as firms scramble for the available employees resulting to higher costs of labor. Companies could also be forced to reduce their rate of hiring due to the rising wages. In such a scenario of increasing wages with the  reduction of hiring rate and the downward pressure on prices due to the stronger dollar, will cause an issue to the Federal Reserve when considering the rate at which to increase the interest rates.

On the other hand, the report on the increasing rates of employment is a key indication that recession is not likely to take place in the year 2016. This is because the rate of economic activities will increase because more employment will increase individual’s incomes, the value of homes, consumer confidence and consumer spending. The rate of unemployment for college graduates remained at 2.5% in January while it increased to 7.4% for individuals without a high school diploma. This indicates that the level of productivity is also likely to go up since most of the people acquiring new jobs are equipped with different skills from colleges. These people are in a position to work more effectively and use technological advancements in their jobs hence improving productivity.

A reduction in the rates of unemployment and an increase in the average wages per hour is a good indication that the economy is performing well. This is because higher wages and more employment will increase the households’ incomes and enhance their spending and saving. An increase in consumer spending increases aggregate demand, promoting the expansion of business entities. The labor market will also experience shortages leading to higher labor cost for companies.

 

 

Slow Spanish Recovery

Spain and other eurozone nations are finding it hard to feel any economic recovery. The nations’ economic growth is mainly characterized by minimal incomes making it hard to repay the huge amounts of debts. The workers in the Spain ceramic tile industry are finding it hard to make ends meet due to significant salary cuts and the lengthy durations they have spent without employment after the economic crisis that affected eurozone countries. This essay examines how low incomes and unemployment affects the rate of households and firm’s spending.

A majority of the employees in Spain going back to employment after staying out of jobs for long periods have to take 50 percent cuts in their salaries as compared to their previous jobs. Most of the earned incomes are then used to repay debts, thus, the standards of living for most households have been negatively affected. Even if there is increased market share in Europe for the ceramic tiles industry, this does not have any positive effect on the employees’ incomes. This market share has been gained by reducing the selling prices as well as the costs. Average household and firms incomes dropped and the bigger share of the income is then used to pay loans.  Both private and public sectors are still having very high levels of debt globally believed to be almost three times of their annual economic output. Moreover, these debts are owed to oversee creditors making the nation vulnerable when there is volatility in the international financial markets.

Although reports released by European authorities indicate that there has been a growth of up to 2.7 percent for seven consecutive quarters in Spain, rates of unemployment are still high at 24%.  A survey by the European Union also says that 97 percent of the citizens still view they are in a bad economic situation. Almost half of the population surveyed said that they did not have any cash savings for emergencies, and they could not afford a holiday of a one-week period. Other countries like Ireland and Portugal are in an almost similar situation whereby their rising imports risks the countries obtaining more foreign debts that will result in a crisis. Portugal has also reduced the salaries of public employees and made it possible for private companies to do the same. In Italy and France, labor costs affect businesses whereby a rise in wage growth has been offsetting the cuts in social security that had brought relief to employers. A rise in labor costs affects a number of exports that the countries can manage to produce, which suppresses their supplies further in the global markets.

Before the 2008 crisis, the construction industry in Spain was performing well, and the majority of the companies could manage to pay high salaries to their employees enabling them to spend more. The crisis caused the closure of the companies and job cuts had to be taken even in the remaining companies. The huge debts problems that affect Spain and other eurozone countries affect the ability of the households and firms to save and spend in other areas because they have to use a significant part of their incomes in paying debts. As a result of the high unemployment, low wages, minimal investments and lack of adequate disposable incomes, prices of products and services have been experiencing downward pressure. This hampers economic growth since businesses cannot grow due to less consumer purchasing power and reduce aggregate demand.

How to Revive Mc Donald’s

The first choice of the case studies, “How to Revive Mc Donald’s” that talks about how previous efforts to turn around the company’s poor performance failed. Instead, it led to a 21 percent reduction of Mc Donald earnings and low volume of sales globally in the fourth quarter. Mc Donald therefore needs to come up with several effective strategies besides the one previously adopted that resulted to the reduction in sales, earnings and the market share. The company’s poor performance can be associated with changes in demand for its products  and the solutions for this problem lies in ensuring demand for Mc Donald products is enhanced. The microeconomic theory of change in demand is essential in developing a good plan that will increase Mc Donald sales, earnings and market share.

Change in demand of a given product is affected by a change in one or more of the determinants of demand. The main determinants of demand include the preferences or tastes of the consumers, the disposable incomes of the consumers, consumer expectations, prices of related goods and the number of buyers in the market. Consequently, a change in demand of a product due to the changes in one or more determinants results to changes in total sales of the products as well as its market demand.  In the case of Mc Donald, negative changes in the demand for its products have led to a decline in the volume of sales and earnings.  This change in demand of its products has been caused by a number of determinants of demand that affected how much the company was able to sell in the market.

One of the factors that have led to change in demand of Mc Donald products is its inability to meet customers’ expectations, which is one of the key determinants of demand. A survey conducted in 2014 ranked Mc Donald burger brands at number 21, the last place. Therefore, there is need for the company to fix its food to ensure customers get the best quality that is available in the market. Additionally, they have failed in providing quick services in their attempts to offer customized brand, thus customers expectations for fast food services are not met.  Secondly, the Company has lost relevance in the type of foods it offers to the customers. This is in relation to lack of nutritional knowledge or the changes from the behavioral, demographic, social and economic needs of the customers. In this case, Mc Donald has failed to meet the customers’ preferences, thus affecting the demand for its products. The company also faces stiff competition from other companies providing similar product. Mc Donald’s failure to focus on their direct competition and ensure it gains a competitive edge among these competitors has led to the customers move to other outlets. The competitors who offer similar services as Mc Donald have affected the demand of the Company’s product because they provide quick services, quality food and a menu that is more focused enabling customers to make order choices easily. The presence of other related services in the market has led to the change in demand for Mc Donald’s products. The mentioned changes in determinants of demand explain why Mc Donald has been experiencing low demand for its products. They also explain why the turnaround plan did not work since the Company concentrated more on attracting more customers instead of ensuring customer retention by gaining their loyalty.

The $50 Billion Question: Can Uber Deliver?

Another selected case study “The $0 Billion Question: Can Uber Deliver? discusses the ability of Uber to offer services in the delivery business as it has managed to do in the taxis business. It is clear from the case study that despite the success in its other line of business, Uber is facing certain challenges that make it difficult to experience quick success in the delivery business. In relation to this issue, the microeconomic theory of supply helps to explain the different levels of services that a provider is willing and able to offer at a given price during a particular period. The microeconomic theory of supply explains the factors that determine Uber’s ability to supply its delivery services to the market and make the delivery business successful just like the taxis business.

A number of factors determine the ability of a producer to offer goods and services in the market at given price and at a particular time.  These include the prices of the resources needed by the business, technology, product expectation, taxes and subsidies, prices of other services, the number of other suppliers. In this case, a number of these factors affect the ability of Uber to offer the delivery services to the market resulting to the success of the delivery business. Uber’s current infrastructures and high revenues obtained from its present business activities gives it enough resources that can enable it to acquire and invest in the resources that it may need to expand its business. The company can use its current resources to expand the delivery business in different cities globally as well as enhance the quality of its services, which will give it a competitive edge.

Technological advancements that were greatly embraced in the establishment of the company have led to the successful of the taxis business whereby with a scroll of a Smartphone transport services are provided to many customers in major cities around the world. This is a clear indication that Uber has the technological potential that will also ensure the success of the launched delivery services. Growth in technology also implies that the demand for these services is likely to increase due to the various kinds of shoppers using Smart phones who are in need of delivery services for many types of products. A high demand for the services result to a big marker for Uber services. The cost advantage derived from the ability of its drivers to pay for the gas, insurance and maintenance enables the company to expand and offer more services. Reduction in costs will help in increasing the profits since Uber will offer its services at more competitive prices, which will increase its market share.

However, Uber’s inability to have insurance to high priced items is one of the costs that hinder the company to offer delivery services to a clientele that deal with very expensive items. The costs limits the number of customers that Uber has and this is likely to have a negative impact on the delivery services revenues. The presence of other start up courier services such as Postmates Inc. and Yelp Inc. is likely to affect the market supply available. The higher the numbers of these start up implies that the market supply for delivery services is increasing, which brings a lot of uncertainties’ in the attractiveness of the market. This is because as the market supply increases, the prices of the services are likely to go down due to high competition. For instance due to high market supply of these services, UberEats, a food delivery services has a minimum number of customers in various cities  and drivers have to dispose a lot of food that remains at the closure of business t the end of the day.  Despite the few shortcomings that Uber has while launching the new delivery services, the company has major advantages that will enable it to supply these services successfully.

  Select Episode II: “The Agony of Reform” for Chapter Summaries and watch the video Analyze the how, why, & what type of microeconomic theories were applied in South America, India, Poland, and Russia to help stimulate their markets and promote business.

In Episode II of The Agony of Reform, different microeconomic views are used in demonstrating a capitalist revolution that began in the 1980s. This resulted from efforts being put by a majority of the countries in the world in the 20^th century to gain economic growth through communist, centralized and wide-ranging dictatorship of economics. The main reason behind this revolution was the negative effects of the economic recession that arose from the economic collapse that was being experienced globally. Countries like South America, India, Poland, and Russia, had to search for the best way out and ensure that their economic woes were brought to an end.

The counties had to apply microeconomic policies that would help in reinventing the fiscal rules that would help to overcome the recession. Before the revolution, certain strategies were used by different nations. South America economies had put restrictions on imports, which would eliminate the issue of foreign exchange outflows. To reduce importations, the government considered it essential for the locally manufactured goods to be subsidized; this promoted the demand for locally produced products.  This policy was referred to as the dependency theory that advocated for a self-sufficient economy. These measures only contributed to hurting the economy whereby the rates of inflation went so high causing the prices of food and clothing to rise.

Chile and Bolivia were some of the nations in South America that took part in this revolution. Chile adopted new microeconomic policies that involved reducing the expenditure of the government, privatizing the businesses that were owned by the state,  eliminating regulations in the markets and doing away with import tariffs. It also supported the growth of exports and put an end to the price controls. In the short run, there was a widened gap between the rich and the poor, secondly, individuals had to spend more on goods and services and the rates of unemployment shot up by 30 percent.  In Bolivia, the leaders found a solution through the shock therapy program whose immediate actions involved doing away with the dependency theory, cutting down government expenditure, eradicating price controls and reducing the import tariffs. The main objective of the government was to balance its budget by making sure that it spent only the revenues that it had was collected. The program had to increase the prices of essential items like food, transport and fuel. Shock therapy was the term used to describe the abandonment of an economic system for a different one overnight.

In Poland, the reforms of the free market were used to tackle the high inflation problems. These reforms were combined with a variety of policies and measures relating to microeconomic with the objective of enhancing economic growth.  A labor movement referred to as solidarity came up with a revolution whose aim was to transform the economic structure from a communist system to free market system. To get to the bottom of inflationary pressures issues, Poland strived to control the balances arising from Trade deficits by having huge reduction in imports and increasing the exports. Macroeconomic reforms that supported the flexibility of the labor market made it possible to increase the imports. A flexible labor market helped in enhancing the competitive strength of products manufactured in Poland. The shock therapy model was also implemented in Poland, transforming the economy to a free market, in the short run, prices doubled, shortages occurred, and it had to take time before the law of demand and supply started to take effect. However, the county took time before it was able to overcome the challenges associated with the privatization of the heavy industries that were state owned. In the government-controlled system. There was much inefficiency in the industries that required lying off a huge number of people from their jobs. The three main things that pushed Poland out of the old system included the establishment of many small enterprises, increase in employments and increase in the total output.

Major economic reforms in Russia also played a role in successfully taking the country to the right direction in recovering their economy. The creation of a different system of governance enhanced the introduction an economic system that had various aspects related to a reform package. Perestroika was an economic reform plan that was being made after the realization that the communist system was not effective. This reform was supposed to make gradual changes in the political systems and introduce a different infrastructure for the market systems. The communist regime in the Russian market was replaced with reforms that were being created. In the new system, freedom was enhanced in the areas of pricing goods and services, rates of exchange and in the way of conducting businesses. The government reduced its spending by cutting down the subsidies provided to industries controlled by the government, and state owned enterprises were . privatized. The private organizations could then be advised on the kind of models of good governance that were effective in a market with aggressive competition.

In India, reforms adopted the path of a free market to solve economic issues that arose from a centralized economic structure. In a centralized plan, the Indian government regulated the private sector enterprises largely, thus, introducing corrupt activities and bureaucracy in doing business. Carrying out business activities and investing in India became very hard for individuals and the government was not able to run the economy in a successful manner. The introduction of free market led to the elimination of self-sufficiency program whereby dependency theory that had been part of the centralized government was abandoned. For many years, imports were controlled thus affecting the quality of products that were also sold at high prices. In the free market, the economy was no longer under state control, subsidies and import tariffs were removed, and regulatory licenses were removed resulting in the growth of businesses and an increase in exports.

The efficiency of the microeconomic policies applied in these countries could be determined by particular improvements that have been witnessed in each of these countries economies as well as in the international markets. In order to improve their economy, these countries had to make transformations in their labor markets, privatize companies and reduce regulations in the market. Moreover, they came up with measures such allowing free trade and introduced reforms in their debt and tax systems that reduced government expenditure. In areas where the government put controls in its expenditure, the microeconomic policies were effective in the highest successful ways among other areas.

Describe specifically how your economic thinking has been affected by this course and how you can best make use of the central principles and theories which were studied. What is the main outcome from the course for you?

My economic thinking has been enlightened in that I have learned that there are both microeconomic and macroeconomic policies in an economy. Microeconomic policies are concerned with how firms and individuals behave when making economic decisions and the relationship between households and firms in a market. Macroeconomic policies are concerned with the economic cyclical movements including unemployment, inflation, and interest rates. It has also enabled me to understand the history of structural economic reforms happened globally.

The application of microeconomic policies is in interpreting the decisions that are made by business enterprises and households in a financial system while macroeconomic policies include fiscal, monetary and structural policies used in initiating the desired changes in a wider economy. In microeconomics, households are identified as the suppliers of different factors utilized in production and those who end up consuming goods and services provided in the market. Microeconomic also identifies those who provide goods and services in a market through their supplies and the demanders of factors of production as the firms. Macroeconomics helps in understanding an entire economy by scrutinizing the particular factors of an economy such as inflation rates. In macroeconomics, fiscal policies are concerned with the government budget that is comprised of government revenues and expenditures. The monetary policy increases or reduces the amount of money circulating in the economy using the central bank’s policies. The structural policy is employed in introducing changes to an economic and institutional structure using government policies. The main outcome of this course is learning how to use various policies in analyzing and understanding various events in the economy. It has helped in identifying various microeconomic and macroeconomic theories in different case studies. Moreover, it has enhanced my understanding of how various economic systems structural reforms were carried out in different nations in the 20^th Century.

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