Unemployment In The United States And Italy

Word Count: 1691 |

One macroeconomics parameter of interest is that of unemployment. Unemployment is a term referring to the inability for workers who are willing to work to find gainful employment. Gainful employment implies that a reasonable profit should be derived from it by the worker(s). The level or degree of unemployment in a nation is one measurement and indicator of the economic health of the country (What is Unemployment). There are a wide range of many factors that can negatively affect the unemployment rate of a country. Some of these include corporate downsizing, mergers, implementation of automation technologies, job outsourcing to other nations, and some even argue that illegal immigration can have a possible impact on the unemployment rate of a country. When unemployment is high, mid-level jobs are actually the most difficult to find, while minimum-wage jobs are always plentiful but are not profitable and are therefore not considered gainful employment for the majority of the work force (What is Unemployment). Unemployment is a major factor for any country. Unemployment affects inflation, trade, the standard of living, taxes, and many issues of economic growth. It is actually very easy to find information on unemployment, but some of it is hard to discern and understand. Also, there is somewhat of a problem finding very recent information about unemployment, since most of what we know of it comes from analyzing past data and recorded patterns. Very recent statistics aren’t often processed yet. It is harder to find information on other countrie’s unemployment. Most of the time European unemployment is grouped altogether in one category, and it becomes tricky to pull apart and distinguish focused information on one country. But for this paper the unemployment issues of United States are compared to those specifically of Italy, which is the other focuse of this topic. The United States currently has low unemployment rates and substantial creation of jobs compared to the past, whereas much of the rest of the industrialized world has high unemployment and little employment expansion (Vedder). It was not always this way because as late as the early 1980s, the United States generally had higher unemployment than major industrialized economies. Unemployment rates once were higher in the United States than other major nations, but are now significantly lower than all but a few other major nations. While American unemployment rates have drifted downwards, the trend in Italy and other places has been for unemployment to increase over time (Vedder). Through much research, it has been decided that there is a sort of systematic relationship between cyclical variations in unemployment and real unit labor cost. Anything that raises, even temporarily, the cost of the labor input per unit of output causes and leads to increased levels of unemployment- the significant dimension of real unit labor cost is the productivity of the labor input. Increases in labor productivity can do two things: they increase levels of employment, and they can generate higher real wage rates for workers. So the United States has shown an increase in labor productivity, and it has also avoided the regular trends of unemployment other countries like Italy face (Vedder).
With the rapid growth in the welfare states of Italy and elsewhere in Europe, have come new regulations interfering in the normal bargaining relationship between employees and employers. Regulations like laws limiting the dismissal of workers, statutes requiring lengthy vacations and frequent holidays, rules setting minimum wages and maximum hours, and so on (Vedder). These contribute to the rising relative cost of labor and thus importantly explain the observed higher unemployment outside the United States. Overall, there are several facts regarding current unemployment rates in the United States, which although may seem not good at all to many people, as we have noticed those rates are really not so bad compared to other countries (Vedder). American unemployment rates have fallen relative to other countries and job opportunities have grown. US unemployment rates have been relatively more stable than those of most other industrialized countries. If one looks back a generation, unemployment rates typically were higher in the United States then in Italy. During the mid to late 1970s, unemployment was far higher in the United States than now. American unemployment has drifted downward throughout most of the 1990s, in contrast to Italy (Vedder.) In short, there is overwhelming evidence that employment creation has been vigorous in the United States, but timid in most of the industrialized world. Joblessness has now reached double digit proportions in Italy, while United States unemployment today is well below the average for the past 30 years (Vedder). The Italian economy lacks robustness and vitality. Unemployment is high, employment growth is low, and its competitive position in world trade is weak in areas of high technology, such as computers, communication technology, and biotechnology. When the American economy is compared to the Italian and other European economies, it is not difficult to see that there is something about incentives in the regulatory welfare state that can cause the different performances of these two types of economies (Heckman). Centralized bargaining and regulation of business entry, banking practices, and employment all contribute to the burden of unemployment. The levels of these disincentives are higher in Italy than in America. This contributes to higher unemployment, lower employment growth, and just pretty much a lower level of effort in the society. The problem of unemployment in Italy is not due solely to the fact that the cost of labor is too high, although that is a problem. It is also due to the inability of the economy to adapt to change and to use the opportunities and challenges of the new economy. The opportunity cost of security and preservation of the status quo (of technology, trade, or job statuses) has risen greatly in recent times (Heckman). Higher wages achieved by unions or by minimum wage statutes must lead to substitution against labor—fewer jobs—if firms are to remain competitive. The facts about Italian unemployment are well known. Unemployment in Italy is high and has been rising over the past 20 years. Lower than American employment 30 years ago, it is now much higher (Amisan). Italian unemployment, like most European unemployment, is largely made up of individuals suffering long spells. The unemployed are essentially just removed from the labor market. In comparison, American unemployment is typically of much shorter duration and is associated with people changing jobs as opportunities appear and dissolve (Heckman). The rise in the unemployment rate in Italy is not due to an increase in employment or labor force participation rates. Prime age male employment rates are similar in the United States. Overall employment rates in Europe and especially Italy are lower. Unemployment rates are very high among Italian youth (Amisan). European unemployment is structural, not cyclical. This means that European—and Italian—employment is not amenable to the typical demand management policies of macroeconomics (Heckman). The factors at work that produce higher levels of Italian unemployment are due to the economic fundamentals of incentives, technology, and labor supply. Italians greatly dislike the route of wage flexibility followed by the American economy. They argue that equity or social justice is as important, if not more important, than economic efficiency. There is indeed less inequality in earnings among workers in Italy than in the United States and in other economies with less rigid markets (Heckman). At the same time though, these statistics exclude the long-term unemployed, who constitute more than half of the unemployed in Italy. Accordingly, comparisons of income inequality between the United States and Italy exclude people with zero earnings (Heckman). As somewhat of a final point, the Italian labor market with the United States is in terms of lifetime inequality. While at a point in time United States inequality is higher, over the lifetime of people, it is lower (Amisan). There is greater mobility and opportunity in the American economy. The rigidity of Italian labor markets pegs people for life. The recent wide scale introduction of short term contracts improves employment in the short run but creates a two-tier labor market and does not encourage the training or formation of skill among the short term employed (Heckman). It promotes inequality in the long run and is not a substitute for genuine labor market reform. And so, because of all these factors and issues, although there is what can be considered a good amount of unemployment in American, Italy suffers from a worse percentage of unemployment, and is at risk to stay that way if it can’t overcome the issues that press down on it that American is learning to overcome.

Works Cited

Amisan, Gianni and Massimiliano Serati. “Unemployment Persistence in Italy. An

Econometric Analysis with Multivariate Time Varying Parameter.”16 Dec 1999.

28 May 2008.

Heckman, James J. “Flexibility, Job Creation and Globalization: The Case of Italy”

University of Chicago and The American Bar Foundation. Sep 2002. 29 May

Vedder, Richard K. and Lowell E. Gallaway. “Unemployment and Jobs In International
Perspective.” Joint Economic Committee Study. Apr 1999. 30 May 3008.

“What is Unemployment?” WiseGeek. 2008. 30 May 2008.

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