Capstone Project

An economic management issue in the public sector is unemployment (or joblessness) occurs when individuals are without work and actively applying and looking for work. The unemployment rate is a measure of the prevalence of redundancy and it is calculated as a percentage by dividing the quantity of those unemployed by all individuals currently in the labor force. Throughout periods of recession, an economy usually encounters a relatively high unemployment rate. According to International Labor Organization report, “more than 197 million individuals globally are not in workforce or six percent of the individuals were without a job in 2012.” (Allegretto & Lynch, 2010) Persistently high rates of unemployment in Europe throughout the last two decades show that unemployment is, at least to a reasonable degree, not just business cycle anomaly. This reflects a proceeding waste of labor and of human capital in most European nations and the United States. It appears reasonable to inquire, if given levels of unemployment impact long-run productivity growth or the long-run level of productivity itself. While unemployment is an extreme issue in Europe, not in the U.S., the decrease in productivity growth has been stronger in the United States. “Between 1979 and 1997 the average rate of unemployment in the US was 6.7% and the average growth rate of labour productivity was 0.9%. In Europe the average rate of unemployment was 9.3% and the average growth rate of labor productivity was 2.2%.” (Allegretto & Lynch, 2010) The reason given for these facts is: high wages lead firms to substitute labor with capital. This can lead to increasing unemployment and productivity since the workers who are still utilized become more productive Therefore, it is ...

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