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Unemployment in Chile
Unemployment in Chile
Unemployment can be defined as the condition whereby people, who have the ability to work and are willing to work but do not have that opportunity. Unemployed workers are those that fit in this definition and have searched for work but have not found jobs. Unemployment rate is measured as a percentage of the labor force that is able to work and is without jobs. The definition includes individuals who are underemployed. The age included in this category is between 15-65 years. This is age is referred to as the working age population (Tibaijuka, 2009).
Chile is one of South America’s countries. The country is characterized by slow growth rate. Chile and Argentina are two South American countries that have the slowest population growth. Chile is highly urbanized with an estimated 85% of the population residing in urban areas. This shows that that the country is more developed. Most of the population resides in metropolitan regions such as Santiago. The capital city has a population share of 39%. Economies that are highly urbanized have low rates of unemployment and low poverty levels. It shows that most people can afford urban life which is always more expensive than rural life (Tibaijuka, 2009).
The rate of unemployment of Chile has historically been low since 1980s. The country has had low rates of unemployment and been deemed to be the country with the lowest rate in the region. In the early 1990s, the country invested in labor intensive businesses. This led to the projection that the future state of economy will require more employees. The large industries that were set up in the country absorbed many people in the country keeping unemployment low in the country. Despite the financial crisis in 2008, the country projected a decrease in unemployment rate from 9.6% in 2009 to 8.7% in 2010 (Tibaijuka, 2009).
Chile is one of the countries that are regarded as emerging nations. It has averaged its unemployment rate at 8.4% since 1986. The country achieved its lowest rates of unemployment in 2004 at 4%. Currently, the rate of inflation is 6.6 percent. The decrease in the state of the economy in the country can be ascribed to economic growth. This means that more employment opportunities are constantly being created in the country. The country can be said to have a considerable good state of the economy (Tibaijuka, 2009). The state of economy is measured largely measured by macro economic tools such as employment as well as inflation.
The country has encouraged domestic investment by providing economic policies which favor businesses in the country. This has also encouraged investors to re-invest in the country since business environment in the country is favorable. Foreign direct investments occupy only four sectors of the economy, namely: water, gas, electricity and mining. Other sectors rely extensively on the country’s domestic market. Since the country has a high population with low rates of unemployment, it is able to provide market for these businesses (World Factbook, 2012).
Chile has a unique trend as far as economic movements are concerned. Per capita income has increased in the last five years. In contrast, inflation rate has reduced significantly. As expected, increase in per capita income increases individual’s disposable income which increases inflation. The state shows that the country produces enough commodities that can satisfy all its population without causing shortages. This has been made possible by economic policies that the country has formulated encouraging local investments. This confines businesses in the country. Chile’s government assists the population that leaves in poverty (World Factbook, 2012). This shows that the country has concerns on people who have unemployed.
The rate of unemployment in Chile has declined since 1980s. The highest noted was in 1986 13.6%. It decreased gradually until 1999 when the economy was influenced by banking crisis that was being experienced in Asian countries. The 1999 crisis drove unemployment rate to 9% and in 2001, the rate increased to 10.1%. However, the rate has decreased from 2002 where it hit 7% in 2007. The 2008 global financial crisis caused an increase in unemployment reaching 9.6% in 2009. The rate dropped with the recovery of the crisis reaching 8.7% in 2010. The rate further dropped in 2011 to reach 7.1 and in the first one-third of 2012, the rate was 6.6 percent (World Factbook, 2012).
The above analysis shows that the country has been able to stabilize its unemployment rate. It means that the government has put forth good economic policies that have been embraced by the country that have resulted into economic growth providing opportunities for employment. The country has been ranked the 30th in the world in terms of business activity and has been recognized as a country where it is easy to conduct business CIA (World Factbook, 2012). It can therefore be concluded that the country has tried to fight with unemployment rate by formulating economic policies that are favorable to businesses.
References
CIA World Factbook, (2012). Chile Employment and Unemployment, Retrieved on 24th of May, 2012 from <http://www.photius.com/countries/chile/economy/chile_economy_employment_and_unemp~455.html>
Tibaijuka, A.K (2009). Building Prosperity: The Centrality of Housing in Economic Development, London: Earthscan.
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Unemployment And Its Effects On Economic Indicators
Unemployment And Its Effects On Economic Indicators
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Overview
This paper outlines the macroeconomic indicators and their effects on the general economic status. In particular, the paper explore the economic concepts of unemployment; its effect on the consumer and government expenditure, GDP, Aggregate demand, and economic growth. The paper goes ahead to explore the implications of strict government regulations and labor union policies on future investment economic capacity.
Unemployment and Economic Indicators
According to Keynesians, unemployment is an economic state where people willing and ready to offer their services at the prevailing wage rates and are actively in search of employment opportunities cannot get work. From the Classical Economists’ point of view, market mechanisms are the primary reason behind the rise in unemployment. The relationship between employment and GDP is established by the Okun’s Law which states that a one percent GDP growth leads to a two percent rise in employment and vice-versa (O’Sullivan and Sheffrin, 2003; 332). Therefore, any significant fall in the GDP causes an increase in the level of unemployment in the economy, as established by the forces of demand and supply. Therefore, unemployment negatively impacts on the GDP, hence, the economy in general. On the other hand, unemployment leads to a significant decline in the aggregate demand for goods and services in the economy (Vedder and Gallaway, 1997; 98). This is attributed to the fact that with unemployment, the disposable income of the consumers drops, hence, limiting their consumption and spending. Such a drop in the income power of the consumers further affect the economic growth rate and the GDP in general.
The Australian School of theories is opposed to labor market interventions since they increase the rate of unemployment. According to this school of thought, unionization, minimum wage policy, bureaucratic work rules, and taxation, among other labor union regulations discourages hiring of workers as was the case in Toyota Australia (Romer, 2011; 456). Unfavorable labor union and state regulations on the labor market such as minimum wage and maximum working hours adversely increase the wage bills, thus, increasing the production costs (Romer, 2011; 487-8). This in turn reduces the profitability index of the company, hence, scaring away potential investors.
Change in the business cycle creates unemployment. In particular, cyclical unemployment arises from economic recessions characterized by high production costs and low demand in the economy. This in turn leaves the employers with little alternative but to lay-off some workers, hence, increase in the rate of unemployment. In addition, with the decline in the aggregate demand following harsh economic conditions, the volume of sales are likely to drop, thereby, reducing the revenue generate from the sales (O’Sullivan, and Sheffrin, 2003; 339). Besides, a rise in the rate of unemployment increases government expenditure in compensation and unemployment benefits. The government will have to dig deeper into its spending to accommodate the unemployed persons.
Conclusion
In general, employment plays a critical role in the economic growth and development. For this reason, opposite forces and factors to employment are detrimental to the economic capacity of a country. Like was the case of Toyota Australia, unemployment limited the economic power of the consumers, with the possible consequences being a fall in consumer expenditure, increase in government spending, low economic growth and development, and decline in the productive capacity of the economy.
Bibliography
O’Sullivan, A. and Sheffrin, M. 2003. Economics: Principles in Action. Upper Saddle River, NJ: Pearson Prentice Hall. pp. 330-339.
Romer, D. 2011. “Unemployment”. Advanced Macroeconomics (Fourth ed.). New York: McGraw-Hill. pp. 456–512.
Vedder, R. and Gallaway, L. 1997. Out of Work: Unemployment and Government in the Twentieth-Century America. New York: NYU Press.