Unemployment

a)Unemployment

An economic condition marked by the fact that individuals actively seeking jobs remain unhired. Unemployment is expressed as a percentage of the total available work force. The level of unemployment varies with economic conditions and other circumstances. 1

Unemployment is defined as by the Bureau of Labor Statistics (BLS) as people who do not have a job, have actively looked for work in the past four weeks, and are currently available for work. Also, people who were temporarily laid off and are waiting to be called back to that job are counted as unemployed. People who are jobless and have not looked for work within the past four weeks are removed from the labor force by the BLS and are no longer counted as unemployed. Most people leave the labor force when they retire, go to school, have a disability that keeps them from working, or have family responsibilities. Others may feel they can't get work, and so stop looking. The BLS calls them discouraged workers. The BLS removes them from both the unemployment statistics and the labor force. However, they are separately reported in the Employment Report. Unemployment is an important statistic used by the government to gauge the health of the economy. If unemployment gets too high, the government will try to stimulate the economy and create jobs with expansionary monetary or fiscal policy. It will also create additional benefits to aid the unemployed until they can find jobs. The BLS measures unemployment through monthly household surveys, called the Current Population Survey (CPS). It has been conducted every month since 1940, as part of the government's response to the Great Depression. It has been modified several times since then, and experienced a major redesign in 1994. This included a revamping of the questionnaire, the use of computer-assisted interviewing, and revisions to some of the labor force concepts. Nationally, unemployment is caused when the economy slows down, and businesses are forced to cut costs by reducing payroll expenses. Unemployment can also be caused by competition in specific industries or companies. Advanced technology, such as computers or robots, cause unemployment by replacing worker tasks with machines. The consequences of unemployment for the economy are less consumer spending, as workers have less money to spend until they find another job. If high national unemployment continues, it can deepen a recession or even cause a depression. That's because less consumer spending from unemployed workers reduces business revenue, which forces them to cut more payroll to reduce their costs. 2

Reference

1. http://www.investorwords.com/5838/unemployment.html

2. http://useconomy.about.com/od/supply/f/unemploy_define.htm

b) Two sectors of the economy growing faster then other sectors

Agriculture is the single most important sector in Bangladesh's economy. Over 80% of the population (or 70% of the workforce) of Bangladesh is engaged in agriculture. The share of agriculture in GDP has fallen from around 57% in the 1970s to 19% in recent years. Nonetheless, agriculture is still one of the largest economic sectors in Bangladesh. The agriculture sector is also the source of many of the small industrial sector's raw materials, such as jute, and accounts for 10% of Bangladesh's exports. In short, agriculture is the driving force behind economic growth in Bangladesh and, as a result, increasing food and agriculture production have always been major concerns of Bangladeshi policy-makers.

Bangladesh's major crops include: rice, jute, tea, wheat, cane, oilseeds, potatoes, pulses, and spices. Rice is by far the largest, with an average 71% share of the gross output value of all crops. As a result, growth in the agricultural sector essentially mirrors the performance of rice production, although the share of livestock and fisheries has increased steadily in recent years to 22% of the value added in agriculture. Bangladesh's dependence on food imports and, in particular, food aid throughout the years has been a cause for concern. In 2006-07, agri-food imports in Bangladesh represented approximately $1.9 billion (8% of total imports) and were worth about 9% of total export earnings. Natural disasters (floods in particular) may cause abnormal increases in imports to the agribusiness sector. Government legislation for agricultural products changes with the country's production and import requirements. For example, the government recently allowed the food import with no tariff at all since there is a significant shortage between demand and the level of local production.

The Bangladesh Agricultural Research Council (BARC) estimates the future requirement for food grains to be about 45 million tones in 2030 (compared to 25 million tones in 2000).Total Bangladesh/Canada agricultural trade was valued at over $265 million in 2007 (January - November), and represented over 32% of total trade between the two countries. Top Canadian agricultural exports to Bangladesh were wheat, valued at $164 million and accounting for over 50% of all agri-food exports, and peas (dried), valued at $70 million or 22% of total agri-food exports. Bangladesh imports large quantities of wheat, as it is a staple of the Bangladeshi diet. Consistent demand in this commodity represents an excellent opportunity for Canadian wheat exporters to increase sales. India is Bangladesh's largest supplier of agri-food, supplying over 18% of Bangladesh's agri-food imports in 2003. Bangladesh's other large agri-food suppliers include Australia and Singapore. Natural disasters pose a constant threat for Bangladesh. The country is particularly vulnerable to sudden floods, cyclones and even droughts. Agriculture growth in 2008 is likely to moderate because of the serious flooding and devastating cyclone that occurred in 2007. The floods and cyclone caused extensive damages to the agriculture sector by affecting crops, livestock, poultry and aquaculture. Production losses due to flooding are estimated at 1.3 million tons, while the November cyclone was also severely damaging. The effect of this year's flooding and cyclone on agriculture sector could be substantial unless the losses are offset by a bumper boro crop.

Vulnerability to natural disasters and a heavy reliance on annual rains for the main crop performance are the causes of severe fluctuations in food grain production and prices, as well as erratic GDP growth. Losses of both food and cash crops are common occurrences which seriously disrupt the entire economy by precipitating unanticipated food import requirements. Bangladesh has an agriculture-dependent economy with a growing population and one of the world's lowest land areas per capita. Not surprisingly, the most important issue in Bangladesh agriculture is to enhance and sustain growth in crop production. The most pressing problem is therefore the current state of stagnating yields and declining productivity in a range of food and non-food crops. Projections of food grain supply and demand are consistent in their conclusions that there is a widening food grain supply gap. With negligible scope for area expansion (as most of the arable lands of Bangladesh are already under cultivation) future growth will have to continue to rely on raising productivity per unit of land. For this reason, continuous efforts are being made towards developing new improved seed varieties. It is also felt that the agricultural sector has by no means exploited its full potential for crop production and that there are various opportunities for substantially increasing cropping intensities. Currently only 40 percent of the potential irrigated area is covered by modern varieties and, most importantly, there are wide gaps between the potential and the realized yields for all crops in the country.

Market and Sector Challenges (Strengths and Weaknesses)

The overriding objective of all agricultural policy and development since independence in Bangladesh has been to achieve self-sufficiency in food grains and, in particular, rice production. In reality, what has actually been sought is a substantial acceleration in the growth rate of domestic food production and a decreased dependence on, or elimination of, food aid in the long term. The emphasis on accelerating food production in Bangladesh stems from the country's excessive dependence on food imports, its precarious external account situation and its perceived comparative advantage in food production.

Although Bangladesh continues to be a net importer of food, importing on average 1.5 million tones of rice annually, it has achieved substantial gains in food grain production during the last two decades. Demand for some agro-based products depends on various climatic factors. Bumper crops may see food imports drop; however, the import of cotton, pulse crops and oilseeds are showing ongoing upward trends. Until the early 1990s, the Trading Corporation of Bangladesh (a government-owned trading house) and the Ministry of Food were the main importers of agro-based commodities. Now, the private sector in Bangladesh has become the largest agro-food importer in Bangladesh. Since 2004-05, the country has achieved an average annual growth rate of around six per cent. Bangladeshi buyers are price-sensitive but are also quality-conscious buyers. Canadian products are well accepted in Bangladesh for their quality. Bangladesh agribusiness opportunities include exporting wheat, oilseeds and pulses. Yearly consumption of wheat in Bangladesh is about 4 million tones. Canadian Wheat.

Canada Western Red Spring is already established in the market due to its price and quality. Major competitors for wheat are from India, Australia, the US and the EC.Local production of most of the oilseeds has either stagnated or declined in recent years due to climatic constraints and increased cultivation of alternative crops such as wheat and rice. The total yearly oilseed crush is approximately 650,000 tones including 250,000 tones of imported rapeseed/canola. Canadian oil seed exports to Bangladesh have significantly increased in recent years. Australia and France are Canada's main competitors.Consumption of pulses has been growing faster than local production and has resulted in an increasing amount of pulse crops imported into the country. Canada is the leading supplier of chickpeas to Bangladesh. Canadian yellow peas are gaining popularity in Bangladesh, competing with its nearest rival, the Australian dun peas. Due to the shortage in local production of agricultural commodities, there are no barriers or quotas affecting the import procedure for agro-commodity items in Bangladesh.

The importation of any food item to Bangladesh requires a phytosanitary certificate from the Canadian Food Inspection Agency (CFIA) that includes a fumigation certificate. Under current Canadian law fumigation of commodities can't be carried out in Canada. CFIA has already launched a bilateral negotiation with the Bangladesh authorities to solve this issue. In the meantime, authorities in Bangladesh have taken a special measure to physically inspect Canadian exported commodities in port and decide their entry after their examination based on the fact that it is free from pests, insects, larva and others. This is an interim measure which was taken until bilateral negotiation leads to a solution.

A radiation certificate is also required with all imports from the Canadian Grain Commission. Pre-shipment inspection through Interdev Testing is mandatory for any export to Bangladesh to certify all Clean Reporting Findings (CRF), except agri-commodities. Local agents/indenters play an important role in the import of agro-commodity products. Both traders and industrial concerns import product through agents. Canadian companies are urged to have local agents handle import facilitation and customer liaison. There are few reputable trading companies in Bangladesh for agro-commodities. In many cases, an agent's value relates to their operating in specific areas of the country or their dealings with specific customers. Wheat and pulses are imported in bulk containers which are bagged and sold in 40-50 kilogram bags. There are strong government regulations in terms of international trade. Importing is permitted only through irrevocable letter of credit and certain documentations are needed for doing business under this regulated environment. Large suppliers dominate the import of wheat and pulses as they import in bulk, in vessel. However, import in containers has been increasing in recent years, and consequently small and medium importers have flourished. Bangladesh is a founding member of the World Trade Organization (WTO) in which it actively represents the interests of the least developed countries. Bangladesh is also a member of good standing in the South Asia Preferential Trade agreement (SAPTA).

In addition, Bangladesh is a member of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), an organization that seeks to promote economic cooperation between Bangladesh, India, Burma (Myanmar), Sri Lanka, and Thailand. Such agreements tend to facilitate and ease trade amongst these countries and represent connections with all of Bangladesh's largest trading partners.

Sub-Sector Identification

Agribusiness has achieved limited success in a few areas including poultry, shrimp, fruits, dairy products, vegetables, wheat and bakery products, medicinal plants, animal feed, flowers and orchids. Other commodities and products including rice, tea, sugar, jute and tobacco have been part of the commercial system of production, but have not shown yet the required dynamism for agribusiness. The largest agricultural sub-sector, rice, is still dominated by a large number of farmers producing for household food security or producing for a small marketable surplus. Scope remains, however, to improve milling, packaging and distribution capacity. Potential for interventions can be at the following levels: Commercialization of production through new products and commodities, such as high value crops, livestock, poultry and fisheries;

Development of forward linkages through improved services, packaging, processing, storage, transport, removal of marketing constraints and opening up of new markets; and Backward linkages through the provision of inputs (seeds, fertilizers, animal feed and agriculture machinery)

* Potential Areas for Exploring Business Opportunity:

* Processing of Potato flakes, pulses and spices;

* Post harvest storage, processing and packaging of fruits and vegetables; and

* Production of organic fertilizer and mixed fertilizer. 3

Reference

3. http://www.ats-sea.agr.gc.ca/asi/4578-eng.htm

TASK-2

a) Full employment

The first definition of full employment would be the situation where everyone willing to work at the going wage rate is able to get a job.

This would imply that unemployment is zero because if you are not willing to work then you should not be counted as unemployed. To be classified as unemployed you would need to be actively seeking work. This does not mean everyone of working age is in employment. Some adults may leave the labor force, for example, women looking after children.

Optimal Unemployment Level

Another definition of full employment would be the ‘optimal' level of unemployment. In practice, an economy will never have zero unemployment because there is inevitably some frictional unemployment. This is the unemployment where people take time to find the best job for them. Frictional unemployment is not necessarily a bad thing. It is better people take time to find a job suitable for their skill level, rather than get the first job that comes along.

Full Employment and Full Capacity

Another way to think of full employment is when the economy is operating at an Output level considered to be at full capacity. I.e. it is not possible to increase real output because all resources are full utilized. This would be a point on a Production possibility frontier. It can also be shown by AD/AS diagram.

Diagram of Full Employment

In this diagram full employment would be at an output of Y2. Here any increase in AD only causes inflation. In practice it is difficult to know precisely what counts as full employment. Practical reasons make it difficult for every firm to operate at 100% capacity. Optimal capacity may considered to be 85%

Full Employment and NAIRU

Another related measure of full employment is the level of unemployment when the economy is at the NAIRU rate of inflation. This is the level of unemployment with a non accelerating rate of inflation. This equates to the Monetarist view of the Phillips curve. However, the NAIRU could be quite high due to supply side factors such as frictional and structural unemployment. 4

Reference

4. http://www.economicshelp.org/blog/unemployment/definition-of-full-employment/

b)Three different ways in full employment occur and disadvantages

In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so. It is defined either as 0% unemployment, literally, no unemployment (the rate of unemployment is the fraction of the work force unable to find work), as by James Tobin, or as the level of employment rates when there is no cyclical unemployment.[3] It is defined by the majority of mainstream economists as being an acceptable level of natural unemployment above 0%, the discrepancy from 0% being due to non-cyclical types of unemployment. Unemployment above 0% is advocated as necessary to control inflation, which has brought about the concept of the Non-Accelerating Inflation Rate of Unemployment (NAIRU); the majority of mainstream economists mean NAIRU when speaking of "full" employment.

What most neoclassical economists mean by "full" employment is a rate somewhat less than 100% employment, considering slightly lower levels desirable, others, such as James Tobin, vehemently disagree, considering full employment as 0% unemployment. As a young professor I did a paper where I analyzed the optimal unemployment rate,” said Joseph Stiglitz, a professor at Columbia University in New York, who knew Tobin at Yale. “Tobin went livid over the idea. To him the optimal unemployment rate was zero. The Conservative belief that there is some law of nature which prevents men from being employed, that it is 'rash' to employ men, and that it is financially 'sound' to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable - the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years. The objections which are raised are mostly not the objections of experience or of practical men. They are based on highly abstract theories - venerable, academic inventions, half misunderstood by those who are applying them today, and based on assumptions which are contrary to the facts…Our main task, therefore, will be to confirm the reader's instinct that what seems sensible is sensible, and what seems nonsense is nonsense.

20th century British economist William Beverage stated that an unemployment rate of 3% was full employment. Other economists have provided estimates between 2% and 13%, depending on the country, time period, and the various economists' political biases. Before Friedman and Phelps, Abba Lerner (Lerner 1951, Chapter 15) developed a version of the NAIRU. Unlike the current view, he saw a range of "full employment" unemployment rates. He distinguished between "high" full employment (the lowest sustainable unemployment under incomes policies) and "low" full employment (the lowest sustainable unemployment rate without these policies).

Ideal unemployment

An alternative, more normative, definition (used by some labor economists) would see "full employment" as the attainment of the ideal unemployment rate, where the types of unemployment that reflect labor-market inefficiency (such as structural unemployment) do not exist. Only some frictional unemployment would exist, where workers are temporarily searching for new jobs. For example, Lord William Beveridge defined "full employment" as where the number of unemployed workers equaled the number of job vacancies available. He preferred that the economy be kept above that full employment level in order to allow maximum economic production.

Long run aggregate supply

The concept of full employment has so far been used in conjunction with the long run aggregate supply (LRAS) curve, where long run potential output is also the full employment level of output. Full employment does not mean that there is 'zero unemployment', but rather that all of the people willing and able to work have jobs at the current wage rate. Full employment is the quantity of labor employed when the labor market is in equilibrium.

NAIRU

The following should be understood in discussions of NAIRU: Governments that follow it are attempting to keep unemployment at certain levels (usually over four percent, and as high as ten or more percent) by keeping interest rates high. As interest rates increase, more bankruptcies of individuals and businesses occur, meaning less money to hire staff or purchase goods (the making and distributing of which requires workers, which means jobs). It might also be noted that the main cause of inflation is not high employment, but rather the ability of banks to make money with little to no backing with things of value (commodities such as gold and silver are some examples), thus flooding the market with money and decreasing the value of each dollar already issued in the process, assuming the economy has not kept up to this increase in issued loans. Economists such as Milton Friedman and Dr. Ravi Batra have theorized ways that a modern economy could have low inflation and near full employment (as in close to 100% of those who are not students and are healthy enough to work, and who wish to work at any given point in time), as of yet these have yet to be widely disseminated through the press or introduced by most governments. Paul Martin - former finance minister and past Prime Minister of Canada - once held that full employment could be achieved, yet let go of this idea after gaining power. For more on this see the expose "Shooting the Hippo" by Linda McQuaig, author and former columnist for many of Canada's top newspapers.

Friedman's view has prevailed so that in much of modern macroeconomics, full employment means the lowest level of unemployment that can be sustained given the structure of the economy. Using the terminology first introduced by James Tobin (following the lead of Franco Modigliani), this equals the Non-Accelerating Inflation Rate of Unemployment (NAIRU) when the real gross domestic product equals potential output. This concept is identical to the "natural" rate but reflects the fact that there is nothing "natural" about an economy.

At this level of unemployment, there is no unemployment above the level of the NAIRU. That is, at full employment there is no cyclical or deficient-demand unemployment. If the unemployment rate stays below this "natural" or "inflation threshold" level for several years, it is posited that inflation will accelerate, i.e. get worse and worse (in the absence of wage and price controls). Similarly, inflation will get better (decelerate) if unemployment rates exceed the NAIRU for a long time. The theory says that inflation does not rise or fall when the unemployment equals the "natural" rate. This is where the term NAIRU is derived.

The level of the NAIRU thus depends on the degree of "supply side" unemployment, i.e., joblessness that can't be abolished by high demand. This includes frictional, structural, and classical unemployment.

Phillips curve

Ideas associated with the Phillips curve questioned the possibility and value of full employment in a society: this theory suggests that full employment—especially as defined normatively—will be associated with positive inflation. The Phillips curve tells us also that there is no single unemployment number that one can single out as the "full employment" rate. Instead, there is a trade-off between unemployment and inflation: a government might choose to attain a lower unemployment rate but would pay for it with higher inflation rates. In 1968, Milton Friedman, leader of the monetarist school of economics, and Edmund Phelps posited a unique full employment rate of unemployment, what they called the "natural" rate of unemployment. But this is seen not as a normative choice as much as something we are stuck with, even if it is unknown. Rather than trying to attain full employment, Friedman argues that policy-makers should try to keep prices stable (a low or even a zero inflation rate). If this policy is sustained, he suggests that the economy will gravitate to the "natural" rate of unemployment automatically.

Structural unemployment

Some Economists estimate a "range" of possible unemployment rates. For example, in 1999, in the United States, the Organization for Economic Co-operation and Development (OECD) gives an estimate of the "full-employment unemployment rate" of 4 to 6.4%. This is the estimated "structural" unemployment rate, (the unemployment when there is full employment), plus & minus, the standard error of the estimate. (Estimates for other countries are also available from the OECD.)

Full employability

Full employability indicates an attempt by government to make people "employable" by both positive means (e.g. training courses) and negative means (e.g. cuts in benefits). It does not necessarily create full employment. 5

References

The OECD on measuring the NAIRU

Devine, James. 2004. The "Natural" Rate of Unemployment. In Edward Fallbrook, ed., A Guide to What's Wrong with Economics, London, UK: Anthem Press, 126-32.

5. http://en.wikipedia.org/wiki/Full_employment

Globalization has various aspects which affect the world in several different ways such as:

Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955. China's trade with Africa rose sevenfold during 2000-07 alone.

Financial - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment.[39] As these worldwide structures grew more quickly than any transnational regulatory regime, the instability of the global financial infrastructure dramatically increased, as evidenced by the Financial crisis of 2007-2010.

Economic - realization of a global common market, based on the freedom of exchange of goods and capital.[44] The interconnectedness of these markets, however, meant that an economic collapse in any one given country could not be contained. Almost all notable worldwide IT companies are now present in India. Four Indians were among the world's top 10 richest in 2008, worth a combined $160 billion. In 2007, China had 415,000 millionaires and India 123,000.

Health Policy - On the global scale, health becomes a commodity. In developing nations under the demands of Structural Adjustment Programs, health systems are fragmented and privatized. Global health policy makers have shifted during the 1990s from United Nations players to financial institutions. The result of this power transition is an increase in privatization in the health sector. This privatization fragments health policy by crowding it with many players with many private interests. These fragmented policy players emphasize partnerships, specific interventions to combat specific problems (as opposed to comprehensive health strategies). Influenced by global trade and global economy, health policy is directed by technological advances and innovative medical trade. Global priorities, in this situation, are sometimes at odds with national priorities where increased health infrastructure and basic primary care are of more value to the public than privatized care for the wealthy.

Political - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization.[49] Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of The United States' own economy, the People's Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power.

Informational - increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fibre optic communications, satellites, and increased availability of telephone and Internet.

Language - the most popular language is Mandarin (845 million speakers) followed by Spanish (329 million speakers) and English (328 million speakers).

* About 35% of the world's mail, telexes, and cables are in English.

* Approximately 40% of the world's radio programs are in English.

* About 50% of all Internet traffic uses English.

Competition - Survival in the new global business market calls for improved productivity and increased competition. Due to the market becoming worldwide, companies in various industries have to upgrade their products and use technology skillfully in order to face increased competition.

Ecological - the advent of global environmental challenges that might be solved with international cooperation, such as climate change, cross-boundary water and air pollution, over-fishing of the ocean, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalize and free trade may increase pollution. On the other hand, economic development historically required a "dirty" industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living. The construction of continental hotels is a major consequence of globalization process in affiliation with tourism and travel industry, Dariush Grand Hotel, Kish, Iran

Cultural - growth of cross-cultural contacts; advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to increase one's standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a "world culture". Some bemoan the resulting consumerism and loss of languages. Also see Transformation of culture.

* Spreading of multiculturalism, and better individual access to cultural diversity (e.g. through the export of Hollywood and, to a lesser extent, Hollywood movies). Some consider such "imported" culture a danger, since it may supplant the local culture, causing reduction in diversity or even assimilation. Others consider multiculturalism to promote peace and understanding between people. A third position gaining popularity is the notion that multiculturalism to a new form of monoculture in which no distinctions exist and everyone just shift between various lifestyles in terms of music, cloth and other aspects once more firmly attached to a single culture. Thus not mere cultural assimilation as mentioned above but the obliteration of culture as we know it today.

* Greater international travel and tourism. WHO estimates that up to 500,000 people are on planes at any one time.[citation needed][56] In 2008, there were over 922 million international tourist arrivals, with a growth of 1.9% as compared to 2007.

* Greater immigration, including illegal immigration. The IOM estimates there are more than 200 million migrants around the world today.

* Incorporation of multinational corporations in to new media. As the sponsors of the All-Blacks rugby team, Adidas had created a parallel website with a downloadable interactive rugby game for its fans to play and compete.

* Social - development of the system of non-governmental organizations as main agents of global public policy, including humanitarian aid and developmental efforts.

* Development of a Global Information System, global telecommunications infrastructure and greater transborder data flow, using such technologies as the Internet, communication satellites, submarine fiber optic cable, and wireless telephones

* Increase in the number of standards applied globally; e.g., copyright laws, patents and world trade agreements.

* The creation of the international criminal court and international justice movements.

* Crime importation and raising awareness of global crime-fighting efforts and cooperation.

* The spread and increased interrelations of various religious groups, ideas, and practices and their ideas of the meanings and values of particular spaces. 6

References

· ^ Bhagwati, Jagdish (2004). In Defense of Globalization. Oxford, New York: Oxford University Press.

· ^ Sheila L. Croucher. Globalization and Belonging: The Politics of Identity in a Changing World. Rowman & Littlefield. (2004). p.10

· ^ The Battle of Armageddon, October, 1897 pages 365-370

· ^ A.G. Hopkins, ed. "Globalization in World History". Norton. (2004). p. 4

· ^ Summary of the Annual Review of Developments in Globalization and Regional Integration in the Countries of the ESCWA Region by the United Nations Economic and Social Commission for Western Asia.

6. http://en.wikipedia.org/wiki/Globalization

TASK-3

a) The unemployment

Unemployment occurs when a person is available and willing to work but currently without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed. The unemployment rate is also used in economic studies and economic indices such as the United States' Conference Board's Index of Leading Indicators as a measure of the state of macroeconomics.

Mainstream economics believes in the main that unemployment is inevitable, and a necessary evil to prevent inflation; this is disputed by some schools of heterodox economics. The causes of unemployment are disputed. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and services in the economy (cyclical unemployment). Others point to structural problems and inefficiencies inherent in labor markets; structural unemployment involves mismatches between demand and supply of laborers with the necessary skillet, sometimes induced by disruptive technologies or globalization. Classical or neoclassical economics tends to reject these explanations, and focuses more on rigidities imposed on the labor market from the outside, such as unionization, minimum wage laws, taxes, and other regulations that may discourage the hiring of workers (classical unemployment). Yet others see unemployment as largely due to voluntary choices by the unemployed and the time it takes to find a new job (frictional unemployment). Behavioral economics highlights phenomena such as sticky wages and efficiency wages which may lead to unemployment.

Demand side

A direct demand-side solution to unemployment is government-funded employment of the able-bodied poor. This was notably implemented in Britain from the 17th century until 1948 in the institution of the workhouse, which provided jobs for the unemployed with harsh conditions and poor wages to dissuade their use. A modern alternative is a job guarantee, where the government guarantees work at a living wage. Temporary measures can include public works programs such as the Works Progress Administration.

Supply side

However, the labor market is not efficient: it does not clear. Minimum wages and union activity keep wages from falling, which means too many people want to sell their labor at the going price but cannot. Supply-side policies can solve this by making the labor market more flexible. These include removing the minimum wage and reducing the power of unions. Other supply side policies include education to make workers more attractive to employers. Supply side reforms also increase long-term growth. This increased supply of goods and services requires more workers, increasing employment. It is argued that supply side policies, which include cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment.

Classical unemployment

Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level, causing the number of job-seekers to exceed the number of vacancies.

Cyclical or Keynesian unemployment

Cyclical or Keynesian unemployment, also known as demand deficient unemployment, occurs when there is not enough aggregate demand in the economy. It gets its name because it varies with the business cycle, though it can also be persistent, as during the Great Depression of the 1930s. This is caused by a business cycle recession and wages not falling to meet the equilibrium level. Cyclical unemployment rises during economic downturns and falls when the economy improves. Keynesians argue that this type of unemployment exists due to inadequate effective aggregate demand. Demand for most goods and services falls, less production is needed and consequently fewer workers are needed, wages do not fall to meet the equilibrium level, and mass unemployment results.

Long-term unemployment

This is normally defined, for instance in European Union statistics, as unemployment lasting for longer than one year. It is an important indicator of social exclusion.

Hidden unemployment

Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government "retraining" programmers) are not officially counted among the unemployed, even though they are not employed. The same applies to those who have taken early retirement to avoid being laid off, but would prefer to be working. The statistic also does not count the "underemployed" - those with part time or seasonal jobs who would rather have full time jobs. Because of hidden unemployment, official statistics often underestimate unemployment rates.

Though many people care about the number of unemployed, economists typically focus on the unemployment rate. This corrects for the normal increase in the number of people employed due to increases in population and increases in the labor force relative to the population. The unemployment rate is expressed as a percentage, and is calculated as follows:

The ILO describes 4 different methods to calculate the unemployment rate:

* Labor Force Sample Surveys are the most preferred method of unemployment rate calculation since they give the most comprehensive results and enables calculation of unemployment by different group categories such as race and gender. This method is the most internationally comparable.

* Official Estimates are determined by a combination of information from one or more of the other three methods. The use of this method has been declining in favor of Labor Surveys.

* Social Insurance Statistics such as unemployment benefits are computed base on the number of persons insured representing the total labor force and the number of persons who are insured that are collecting benefits. This method has been heavily criticized due to the expiration of benefits before the person finds work.

* Employment Office Statistics are the least effective being that they only include a monthly tally of unemployed persons who enter employment offices. This method also includes unemployed who are not unemployed per the ILO definition. 7

References

· ^ "International Labour Organization: Resolution concerning statistics of the economically active population, employment, unemployment and underemployment, adopted by the Thirteenth International Conference of Labour Statisticians (October 1982); see page 4; accessed November 26, 2007" (PDF).

· ^ http://www.cepr.net/documents/publications/US-EU-UR-2009-05.pdf

· ^ Bourdieu, Pierre. THE WEIGHT OF THE WORLD: Social Suffering in Contemporary Society.

· ^ Sloman, John (2004). Economics. Penguin. p. 811.

* ^ Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 330. ISBN 0-13-063085-3.

7. http://en.wikipedia.org/wiki/Unemployment

b) Society

The term society is currently used to cover both a number of political and scientific connotations as well as a variety of associations.

Western society

The development of the Western world has brought with it the emerging concepts of Western culture, politics and ideas, often referred to simply as Western society. Geographically, it covers at the very least the countries of Western Europe, North America, Australia and New Zealand and sometimes also includes South America and Israel. The cultures and lifestyles of all of these stem from Western Europe. They all enjoy relatively strong economies and stable governments, allow freedom of religion, have chosen democracy as a form of governance, favor capitalism and international trade, are heavily influenced by Judeo-Christian values, and have some form of political and military alliance or cooperation.

Information society

Although the concept of information society has been under discussion since the 1930s, in the modern world it is almost always applied to the manner in which information technologies have impacted society and culture. It therefore covers the effects of computers and telecommunications on the home, the workplace, schools, government and various communities and organizations, as well as the emergence of new social forms in cyberspace. One of the European Union's areas of interest is the Information Society. Here policies are directed towards promoting an open and competitive digital economy, research into information and communication technologies, as well as their application to improve social inclusion, public services and quality of life.

The International Telecommunications Union's World Summit on the Information Society in Geneva and Tunis (2003/2005) has led to a number of policy and application areas where action is required. These include:

* promotion of ICTs for development;

* information and communication infrastructure;

* access to information and knowledge;

* capacity building;

* building confidence and security in the use of ICTs;

* enabling environment;

* ICT applications in the areas of government, business, learning, health, employment, environment, agriculture and science;

* cultural and linguistic diversity and local content;

* media;

* ethical dimensions of the Information Society;

* International and regional cooperation.

Knowledge society

As access to electronic information resources increased at the beginning of the 21st century, special attention was extended from the Information Society to the knowledge society. In the words of an Irish governmental analysis, "The capacity to manipulate, store and transmit large quantities of information cheaply has increased at a staggering rate over recent years. The digitization of information and the associated pervasiveness of the Internet are facilitating a new intensity in the application of knowledge to economic activity, to the extent that it has become the predominant factor in the creation of wealth. As much as 70 to 80 percent of economic growth is now said to be due to new and better knowledge.

The Second World Summit on the Knowledge Society, held in Chania, Crete, in September 2009, gave special attention to the following topics:

* business and enterprise computing;

* technology-enhanced learning;

* social and humanistic computing;

* culture, tourism and technology;

* e-government and e-democracy;

* innovation, sustainable development and strategic management;

* service science, management and engineering;

* intellectual and human capital development;

* ICTs for ecology and the Green Economy;

* future prospects for the Knowledge Society;

* Technologies and business models for the creative industries.

People of many nations united by common political and cultural traditions, beliefs, or values are sometimes also said to be a society (such as Judeo-Christian, Eastern, and Western). When used in this context, the term is employed as a means of contrasting two or more "societies" whose members represent alternative conflicting and competing worldviews. Some academic, professional and scientific associations describe themselves as societies (for example, the American Mathematical Society, American Society of Civil Engineers, or the Royal Society). In some countries (for example the United States, France and Latin America), the term "society" is used in commerce to denote a partnership between investors or the start of a business. In the United Kingdom, partnerships are not called societies, but cooperatives or mutual are often known as societies (such as friendly societies and building societies). 8

Reference

· Effland, R. 1998. The Cultural Evolution of Civilizations Mesa Community College.

· Jenkins, R. 2002. Foundations of Sociology. London: Palgrave MacMillan. ISBN 0-333-96050-5.

· Lenski, G. 1974. Human Societies: An Introduction to Macrosociology. New York: McGraw- Hill, Inc.

· Raymond Williams, "www.flpmihai.blogspot.com", in: Williams, Key Words: A Vocabulary of Culture and Society. Fontana, 1976.

8. http://en.wikipedia.org/wiki/Society

TASK-4

a) The government should tackle the symptoms of unemployment

Economists expect official labor market data due at 9.30am to show the claimant count fell again in April, this time by 20,000 following a 32,900 drop in March. Still, behind those headline figures, the number of long-term unemployed, particularly among the over-50s, has been rising. And at 2.5 million the number of people out of work is at its highest since the end of 1994. Economists see no change in today's data from the jobless rate of 8%, the highest since 1996. With public sector job cuts looming, and firms likely to think twice about hiring workers if the recovery remains sluggish, we still think that employment has further to fall," says Jonathan Loins at Capital Economics. The Chartered Institute of Personnel and Development (CIPD) have also warned that recent political uncertainty could hurt the labor market. The UK jobs market remains fragile with tentative signs of increased hiring by private sector employers offset by mounting pessimism in the public sector, and employers in general still very uncertain about the strength of the economic recovery," says the Cap's chief economic adviser John Philpot. Employers are looking for a lasting political settlement and, in particular, clarity on the shape of economic and employment policy that will help inform decisions about staffing levels. Without this, hopes for any marked improvement in job prospects later this year will be dashed. The Office for National Statistics' data on average earnings will be scrutinized for any signs that above-target inflation is spilling over in the labor market. Economists are not overly worried about that happening yet, with a Reuter's poll forecasting average weekly earnings growth to come slow to 2.1% in the three months to March on a year ago after growth of 2.3% in the three months to February. The BoE, whose quarterly inflation report is due at 10.30am, has recently shown signs of becoming a little jitterier about the inflation outlook. The Bank left rates on hold at a record low of 0.5% this week but economists expect it will today concede that inflation will be slightly higher than previously thought this year, raising the chances of borrowing costs being increased before the end of the year. In February the Bank blamed the spike in inflation on short-term effects such as rising oil prices and the end of a VAT cut; it saw inflation falling back appreciably later this year. While the latest data showing a surge in industrial production yesterday points to stronger economic growth in the first quarter, BoE governor Mervin King is likely to use the press conference following the inflation report's publication to stress there is still plenty of spare capacity in the economy to keep inflation contained. The current recovery does not appear to have enough 'legs' to sustain itself without ultra low rates for the time being, while uncertainties over the path of UK fiscal policy, plus the recent round of market pressures related to the Greek crisis also reinforce a stance of wait and see," says Philip Shaw at Invested. The inflation report will be important in assessing how these factors stack up against what appears to be some disquiet on the committee surrounding the UK's disappointing inflation performance over the past year. The most recent inflation reading came in at 3.4%, well above the BoE's government-set target of 2%. 9

Referenc9.http://www.guardian.co.uk/business/2010/may/12/unemployment-figures-wont-cheer-new-government

b) The causes of three different types of unemployment

Government agencies often are concerned with calculating the numbers of the unemployed, while economists are more concerned with the causes of unemployment. Economists often apply a three-way categorization of types of unemployment that are helpful in thinking about some of the major causes of unemployment.

Frictional Unemployment

Frictional (or search) unemployment merely reflects people's transitions between jobs. The fact that some people are unemployed does not necessarily mean that there are no jobs available. In April 2006, for example, while 7.0 million people were looking for jobs, there were also an estimated 4.1 million job vacancies—that is, jobs looking for people! Even in a well-functioning economy, it may take many weeks for people and suitable jobs to find each other. An unemployment rate of 0% could only happen if everyone who wants a job always takes one immediately—within a week. Not only is this unlikely, this is also in some ways undesirable. Taking the first job offered is often not the best thing for the person looking for the job, nor for the economy as a whole. Everybody benefits if people take the time to find good job “matches”—places where their skills and talents can be put to valuable use. Because information about job openings takes time to find, and employers may want to spend time interviewing and testing applicants, making a good job match is not an instantaneous process. For the most part, economists don't worry too much about frictional unemployment, because some amount of frictional unemployment—say, 2-3%—is inevitable and much of it tends to be short-term. Things like innovative web technologies for matching job offers to job seekers may reduce frictional unemployment by reducing search time. Many job seekers rely on state unemployment insurance programs to ease their income needs while they spend time searching for work. Unemployment compensation benefits are, in many states, set equal to half a worker's earnings or a state-set maximum (whichever is less). Workers who qualify can usually receive benefits for up to 26 weeks. Part of the justification for these programs is to allow people the time to make good matches.

Structural Unemployment

Structural unemployment arises in an economy when a mismatch occurs between the kinds of jobs being offered by employers and the skills, experience, education, and geographical location of potential employees. One important cause of structural unemployment is sect oral shifts, where employment in some sectors falls while employment in other sectors rises. The U.S. economy may have a lot of new jobs for financial analysts and nurses aides in the Southwest, for example. But these won't do you much good if you live in the Northeast and have skills in engine assembly or web design. On the positive side, structural unemployment arises from what economist Joseph Schumpeter (1883-1950) called “creative destruction.” Schumpeter thought this was a good and necessary thing for capitalist economies. Technological and entrepreneurial innovations have often contributed to improved living standards, even though they cause some job opportunities to dry up. People skilled in outdated technologies buggy-whip manufacturing is a classic example—necessarily become unemployed. Society could have tried to prevent unemployment in buggy-whip manufacturing by banning the introduction of the automobile, but the cost in economic growth would have been immense. If we, today, begin to move away from internal combustion engines due to their negative environmental impacts, the conventional auto industry will decline just as the buggy-whip industry declined at the end of the horse-and-buggy era. New technologies, new markets, and new concerns create new opportunities. On the negative side, shifts in employment patterns by sector and industry are very disruptive, and often very painful, to the people who work in the declining sectors and to their families and communities. People in the declining sectors see the value of their specialized human capital depreciating rapidly. Whole towns and cities may become economically depressed when a major industry closes down, since the unemployed workers spend less at local businesses and property values plummet. Displaced workers may be able to train for a new career—especially if they are young and able to move to wherever the new jobs may be. But many displaced workers, particularly older ones, may never find the kind of pay and satisfaction that they had at their earlier occupations. Older displaced workers are more likely than younger ones to stay unemployed for long periods, or exit the labor force. Governments at all levels have tried various policies to prevent or alleviate structural unemployment. The governments of some countries, notably Germany and Japan in the 1980's and 1990's, have followed industrial policies through which they directly encourage the development and retention of certain key industries through loans, subsidies, and tax credits. During negotiations on international trade, one sensitive issue is always the impact that increased trade might have on the employment levels in various industries in each country. Government policies in the United States that target structural unemployment often focus on attempting to help displaced workers find new employment. For example, the Trade Adjustment Assistance Reform Act of 2002 provides benefits for certain worker displaced as a result of increased imports or the shifting of production to other countries. Workers who qualify for the program can receive retraining along with temporary income support payments and assistance with health insurance. The key feature of these programs is that they are targeted to particular workers, in particular sectors of the economy. There has been some question, however, as to whether they have actually been successful in getting displaced workers into new, good jobs. Business policies at the firm level are also relevant: firms can help prevent structural unemployment if they make retaining and/or retraining their loyal employees a priority, even while responding to changes in technology and trade.

Cyclical Unemployment

Unemployment over the Business Cycle, U.S. 1969-2006. Unemployment rates rise during recessions (shown in grey). During recent “recoveries,” they have also continued to climb. (Source: GDAE). Cyclical unemployment is unemployment due to macroeconomic fluctuations—specifically, unemployment which occurs due to a drop off in aggregate demand. During recessions, unemployment rises as demand for the products of business falls off. During recoveries, this kind of unemployment should decrease.

Traditionally, a recession has been defined as a case where gross domestic product (GDP) falls for two consecutive calendar quarters. Most economists look to the National Bureau of Economic Research (NBER), a nonprofit and nongovernmental economic research organization, to "officially" mark the beginning and end of recessions. The NBER determinations are strongly based on GDP data, though they also look at other indicators such as the levels of industrial production and wholesale-retail sales. Figure 1 shows the monthly unemployment rate in the United States from January 1969 to May, 2006. Unemployment was at a low of 3.4% in 1969 and at a high of 10.8% in 1982. Notice in the figure that since 1982 the U.S. economy has apparently been characterized by less frequent and shorter recessions. However, while earlier recovery periods were characterized by immediate upswings in employment, the recessions that NBER says ended in 1991 and 2001 were followed by continuing job slumps. The continued loss of jobs well into 2003, after the last recession, caused many commentators to call it the “jobless recovery.” Apparently, while GDP grew, it grew too slowly to provide jobs for new entrants and keep up with increasing labor productivity. Is an economy really “recovering” if employment is still dropping or stagnating? Not surprisingly, given that the field of macroeconomics was born out of the problems of the Great Depression, cyclical unemployment is of major concern to macroeconomists. While structural unemployment affects only some sectors of the economy and some amount of frictional unemployment seems inevitable, cyclical unemployment is spread broadly through the economy and can cause considerable economic hardship. For this reason, it seems that avoiding or minimizing cyclical unemployment should be an important goal of economic policy.

Unemployment over the Business Cycle, U.S. 1969-2006. Unemployment rates rise during recessions (shown in grey). During recent “recoveries,” they have also continued to climb. (Source: GDAE) 10

Reference

10. http://www.eoearth.org/article/Types_of_unemployment

c) Policy measure for three different types of unemployment

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, annual inflation is also erosion in the purchasing power of money - a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. Inflation's effects on an economy are manifold and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, or may lead to reductions in investment of productive capital and increase savings in non-producing assets. Selling stocks and buying gold. This can reduce overall economic productivity rates, as the capital required to retool companies becomes more elusive or expensive. High inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include a mitigation of economic recessions, and debt relief by reducing the real level of debt. High rates of inflation and hyperinflation can be caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Today, most mainstream economists favor a low steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements. Inflation is usually estimated by calculating the inflation rate of a price index, usually the Consumer Price Index. The Consumer Price Index measures prices of a selection of goods and services purchased by a "typical consumer". The inflation rate is the percentage rate of change of a price index over time. For instance, in January 2007, the U.S. Consumer Price Index was 202.416, and in January 2008 it was 211.080. The formula for calculating the annual percentage rate inflation in the CPI over the course of 2007 is

The resulting inflation rate for the CPI in this one year period is 4.28%, meaning the general level of prices for typical U.S. consumers rose by approximately four percent in 2007.

Other widely used price indices for calculating price inflation include the following:

* Cost-of-living indices (COLI) are indices similar to the CPI which are often used to adjust fixed incomes and contractual incomes to maintain the real value of those incomes.

* Producer price indices (PPIs) which measures average changes in prices received by domestic producers for their output. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any eventual increase in the CPI. Producer price index measures the pressure being put on producers by the costs of their raw materials. This could be "passed on" to consumers, or it could be absorbed by profits, or offset by increasing productivity. In India and the United States, an earlier version of the PPI was called the Wholesale Price Index.

* Commodity price indices, which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee.

* Core price indices: because food and oil prices can change quickly due to changes in supply and demand conditions in the food and oil markets, it can be difficult to detect the long run trend in price levels when those prices are included. Therefore most statistical agencies also report a measure of 'core inflation', which removes the most volatile components (such as food and oil) from a broad price index like the CPI. Because core inflation is less affected by short run supply and demand conditions in specific markets, central banks rely on it to better measure the inflationary impact of current monetary policy.

Other common measures of inflation are:

* GDP deflator is a measure of the price of all the goods and services included in Gross Domestic Product (GDP). The US Commerce Department publishes a deflator series for US GDP, defined as its nominal GDP measure divided by its real GDP measure.

* Regional inflation The Bureau of Labor Statistics breaks down CPI-U calculations down to different regions of the US.

* Historical inflation before collecting consistent econometric data became standard for governments, and for the purpose of comparing absolute, rather than relative standards of living, various economists have calculated imputed inflation figures. Most inflation data before the early 20th century is imputed based on the known costs of goods, rather than compiled at the time. It is also used to adjust for the differences in real standard of living for the presence of technology.

* Asset price inflation is an undue increase in the prices of real or financial assets, such as stock (equity) and real estate. While there is no widely accepted index of this type, some central bankers have suggested that it would be better to aim at stabilizing a wider general price level inflation measure that includes some asset prices, instead of stabilizing CPI or core inflation only. The reason is that by raising interest rates when stock prices or real estate prices rise, and lowering them when these asset prices fall, central banks might be more successful in avoiding bubbles and crashes in asset prices.

* Issues in measuring Measuring inflation in an economy requires objective means of differentiating changes in nominal prices on a common set of goods and services, and distinguishing them from those price shifts resulting from changes in value such as volume, quality, or performance. For example, if the price of a 10 oz. can of corn changes from $0.90 to $1.00 over the course of a year, with no change in quality, then this price difference represents inflation. This single price change would not, however, represent general inflation in an overall economy. To measure overall inflation, the price change of a large "basket" of representative goods and services is measured.

This theory begins with the equation:

M is the quantity of money.

V is the velocity of money in final expenditures;

P is the general price level;

Q is an index of the real value of final expenditures;

In this formula, the general price level is affected by the level of economic activity (Q), the quantity of money (M) and the velocity of money (V). The formula is an identity because the velocity of money (V) is defined to be the ratio of final expenditure () to the quantity of money (M).11

Reference

· Wyplosz & Burda 1997 (Glossary);

· Blanchard 2000 (Glossary)

· Barro 1997 (Glossary)

· Abel & Bernanke 1995 (Glossary)

11. http://en.wikipedia.org/wiki/Inflation

TASK-5

a) Supply side economics

Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. Consumers will then benefit from a greater supply of goods and services at lower prices.

The term “supply-side economics” is used in two different but related ways. Some use the term to refer to the fact that production (supply) underlies consumption and living standards. In the long run, our income levels reflect our ability to produce goods and services that people value. Higher income levels and living standards cannot be achieved without expansion in output. Virtually all economists accept this proposition and therefore are “supply siders. Supply-side economics” is also used to describe how changes in marginal tax rates influence economic activity. Supply-side economists believe that high marginal tax rates strongly discourage income, output, and the efficiency of resource use. In recent years, this latter use of the term has become the more common of the two and is thus the focus of this article. The marginal tax rate is crucial because it affects the incentive to earn. The marginal tax rate reveals how much of one's additional income must be turned over to the tax collector as well as how much is retained by the individual. For example, when the marginal rate is 40 percent, forty of every one hundred dollars of additional earnings must be paid in taxes, and the individual is permitted to keep only sixty dollars of his or her additional income. As marginal tax rates increase, people get to keep less of what they earn.

An increase in marginal tax rates adversely affects the output of an economy in two ways. First, the higher marginal rates reduce the payoff people derive from work and from other taxable productive activities. When people are prohibited from reaping much of what they sow, they will sow more sparingly. Thus, when marginal tax rates rise, some people those with working spouses, for example will opt out of the labor force. Others will decide to take more vacation time, retire earlier, or forgo overtime opportunities. Still others will decide to forgo promising but risky business opportunities. In some cases, high tax rates will even drive highly productive citizens to other countries where taxes are lower.These adjustments and others like them will shrink the effective supply of resources, and therefore will shrink output. Second, high marginal tax rates encourage tax-shelter investments and other forms of tax avoidance. This is inefficient. If, for example, a one-dollar item is tax deductible and the individual has a marginal tax of 40 percent, he will buy the item if it is worth more than sixty cents to him because the true cost to him is only sixty cents. Yet the one-dollar price reflects the value of resources given up to produce the item. High marginal tax rates, therefore, cause an item with a cost of one dollar to be used by someone who values it less than one dollar. Taxpayers facing high marginal tax rates will spend on pleasurable, tax-deductible items such as plush offices, professional conferences held in favorite vacation spots and various fringe benefits a company luxury automobile, business entertainment, and a company retirement. Real output is less than its potential because resources are wasted producing goods that are valued less than their cost of production.

The supply-side economic policy of cutting high marginal tax rates, therefore, should be viewed as a long-run strategy to enhance growth rather than a short-run tool to end recession. Changing market incentives to increase the amount of labor supplied or to move resources out of tax-motivated investments and into higher-yield activities takes time. The full positive effects of lower marginal tax rates are not observed until labor and capital markets have time to adjust fully to the new incentive structure. Because marginal tax rates affect real output, they also affect government revenue. An increase in marginal tax rates shrinks the tax base, both by discouraging work effort and by encouraging tax avoidance and even tax evasion. This shrinkage necessarily means that an increase in tax rates leads to a less than proportional increase in tax revenues. Indeed, economist Arthur Lifer (of “Lifer curve” fame) popularized the notion that higher tax rates may actually cause the tax base to shrink so much that tax revenues will decline, and that a cut in tax rates may increase the tax base so much that tax revenues increase. How likely is this inverse relationship between tax rates and tax revenues? It is more likely in the long run when people have had a long time to adjust. It is also more likely when marginal tax rates are high, but less likely when rates are low. Imagine a taxpayer in a 75 percent tax bracket who earns $300,000 a year. Assume for simplicity that the 75 percent tax rate applies to all his income. Then the government collects $225,000 in tax revenue from this person. Now the government cuts tax rates by one-third, from 75 percent to 50 percent. After the tax cut, this taxpayer gets to keep $50, rather than $25, of every $100, a 100 percent increase in the incentive to earn. If this doubling of the incentive to earn causes him to earn 50 percent more, or $450,000, then the government will get the same revenue as before. If it causes him to earn more than $450,000, the government gets more revenue. Now consider a taxpayer paying a tax rate of 15 percent on all his income. The same 33 percent rate reduction cuts his rate from 15 percent to 10 percent. Here, take-home pay per $100 of additional earnings will rise from $85 to $90, only a 5.9 percent increase in the incentive to earn. Because cutting the 15 percent rate to 10 percent exerts only a small effect on the incentive to earn, the rate reduction has little impact on the amount earned. Therefore, in contrast with the revenue effects in high tax brackets, tax revenue will decline by almost the same percentage as tax rates in the lowest tax brackets. The bottom line is that cutting all rates by a third will lead to small revenue losses (or even revenue gains) in high tax brackets and large revenue losses in the lowest brackets. As a result, the share of the income tax paid by high-income taxpayers will rise. 12

Reference

12. http://www.econlib.org/library/Enc/SupplySideEconomics.html

b) The supply side economics reduce unemployment

Supply Side economics is the branch of economics that considers how to improve the productive capacity of the economy. It tends to be associated with Monetarist, free market economics. These economists tend to emphasize the benefits of making markets, such as labor markets more flexible. However, some supply side policies can involve government intervention to overcome market failure. Supply Side Policies are government attempts to increase productivity and shift Aggregate Supply (AS) to the right.

Deregulation

This involves reducing barriers to entry in order to make the market more competitive. For example BT used to be a Monopoly but now telecommunications is quite competitive. Competition tends to lead to lower prices and better quality of goods / service.

Reducing Income Taxes.

It is argued that lower taxes (income and corporation) increase the incentives for people to work harder, leading to more output.

However this is not necessarily true, lower taxes do not always increase work incentives (e.g. if income effect outweighs substitution effect)

Increased education and training

Better education can improve labor productivity and increase AS.

Often there is under-provision of education in a free market, leading to market failure. Therefore the govt may need to subsidies suitable education and training schemes.

However govt intervention will cost money, requiring higher taxes, it will take time to have effect and govt may subsidies the wrong types of training

Reducing the power of Trades Unions

This should

* increase efficiency of firms e.g. less time lost to strikes

* reduce unemployment ( if labor markets are competitive)

Reducing State Welfare Benefits

This may encourage unemployed to take jobs.

Providing better information about jobs

This may also help reduce frictional unemployment.

Deregulate financial markets to allow more competition and lower borrowing costs for consumers and firms. Lower Tariff barriers this will increase trade.

Removing unnecessary red tape and bureaucracy which add to a firms costs Improving Transport and infrastructure. Due to market failure this is likely to need govt intervention to improve transport and reduce congestion. This will help reduce firm's costs.

This is said to be an important objective for the EU to increase competitiveness. E.g. make it easier to hire and fire workers. 13

Reference

13. http://www.economicshelp.org/macroeconomics/economic-growth/supply-side-policies.html

c) The government supply side economics reduce unemployment

Most governments now accept that an improved supply-side performance is the key to achieving sustained economic growth without a rise in inflation. But supply-side reform on its own is not enough to achieve this growth. There must also be a high enough level of aggregate demand so that the productive capacity of an economy is actually brought into play. There are two broad approaches to the supply-side. Firstly policies focused on product markets where goods and services are produced and sold to consumers and secondly the labour market - a factor market where labour is bought and sold.

Supply Side Policies for Product Markets

Product markets refer to markets in which all kinds of commodities are traded, for example the market for airline travel; for mobile phones, for new cars; for pharmaceutical products and the markets for financial services such as banking and occupational pensions. Supply-side policies in product markets are designed to increase competition and efficiency. If the productivity of an industry improves, then it will be able to produce more with a given amount of resources, shifting the LRAS curve to the right.

Privatisation

Over the last twenty-five years, many former state-owned businesses have been privatised - i.e. they have transferred from the public sector into the private sector. Examples in Britain include British Gas, British Telecom, British Airways, British Steel, British Aerospace, the regional water companies, the main electricity generators and distributors, and the Railways. British Rail was privatised in 1994 but the failure of Railtrack led to the creation of Network Rail, a ‘not for profit' company in 2002. The Labour Government has continued to privatise or part-privatise other parts of the UK public sector since it came to power in 1997. Privatization is designed to break up state monopolies and create more competition. The government also created utility regulators who have imposed price controls on many of these industries and who are now over-seeing the move towards competitive markets in areas such as gas and electricity supply and telecommunications.

Deregulation of Markets

De-regulation or liberalisation means the opening up of markets to greater competition. The aim of this is to increase market supply (driving prices down) and widen the range of choice available to consumers. The discipline of competition should also lead to greater cost efficiency from producers - who are keen to hold onto their existing market share. Good examples of deregulation to use include: urban bus transport, parcel delivery services, mortgage lending, telecommunications, and gas and electricity supply.

Toughening up of Competition Policy

Most supply-side economists believe in the dynamic effects of greater competition and that competition forces business to become more efficient in the way in which they use scarce resources. This reduces costs which can be passed down to consumers in the form of lower prices.

A commitment to free international trade

Trade between nations creates competition and should be a catalyst for improvements in costs and lower prices for consumers. The UK government is committed to an expansion of free trade within the European Single Market and also to negotiating a liberalisation of trade in the global economy as part of its membership of the World Trade Organisation. For example, it wants to see further reforms of the Common Agricultural Policy as a stepping-stone to global trade agreements between Europe, the United States and developing countries.

Measures to encourage small business start-ups / entrepreneurship

The small businesses of today can often become the larger businesses of tomorrow, adding to national output, employing more workers and contributing to innovative behaviour that can have positive spill-over effects in other industries. Governments of all political persuasion argue that they want to promote an entrepreneurial culture and to increase the rate of new business start-ups. Supply side policies include loan guarantees for new businesses; regional policy assistance for entrepreneurs in depressed areas of the country; advice for new firms

Capital investment and innovation:

Capital spending by firms adds to aggregate demand (C+I+G+(X-M)) but also has an important effect on long run aggregate supply. Supply side policies would include tax relief on research and development and reductions in the rate of corporation tax. Ireland is a good example of a country inside the EU that has benefited hugely from cutting company taxes which has led to a large rise in foreign direct investment. One of the new countries joining the EU in 2004, Estonia, has cut its corporation tax rate to zero per cent (0%) in a deliberate attempt to attract new investment and stimulate economic growth and employment. There are now big differences in corporation tax rates among the twenty five nations of the European Union.

Supply side policies for the Labor Market

These policies are designed to improve the quality and quantity of the supply of labor available to the economy. They seek to make the British labor market more flexible so that it is better able to match the labor force to the demands placed upon it by employers in expanding sectors thereby reducing the risk of structural unemployment. An expansion in the UK's total labor supply increases the productive potential of an economy. That expansion in the supply of people willing and able to work can come from several sources for example: encouraging older people to stay in the workforce; a relaxed approach to labor migration and measures to get non-working parents to actively look for work.

Showing the effects of supply-side improvements in the economy

Supply-side factors often help to explain why it is that some countries grow faster than others. In a world of globalisation, it is becoming clearer that maintaining and improving competitiveness is vital in achieving success in international markets. A rising share of GDP in most countries is devoted to international trade. Markets are becoming more competitive and those countries whose supply-side lets those down can find a rising level of import penetration into their domestic markets and a weak export performance in goods and services.

Showing the effects of supply-side improvements in the economy

Supply-side factors often help to explain why it is that some countries grow faster than others. In a world of globalization, it is becoming clearer that maintaining and improving competitiveness is vital in achieving success in international markets. A rising share of GDP in most countries is devoted to international trade. Markets are becoming more competitive and those countries whose supply-side lets those down can find a rising level of import penetration into their domestic markets and a weak export performance in goods and services.

Supply side improvements can also be shown using a production possibility frontier

Supply side policies and productivity

It is important to recognize that the supply-side does not operate in isolation from changes in aggregate demand. If there is insufficient AD, it is unlikely that better supply-side performance can be achieved over a number of years. Equally, if aggregate demand grows too quickly, acceleration in wage and price inflation might require deflationary policies that ultimately harm a country's productive potential. 14

Reference

14. http://tutor2u.net/economics/revision-notes/as-macro-supply-side-policies.html

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8. http://en.wikipedia.org/wiki/Society

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10. http://www.eoearth.org/article/Types_of_unemployment

· Wyplosz & Burda 1997 (Glossary);

· Blanchard 2000 (Glossary)

· Barro 1997 (Glossary)

· Abel & Bernanke 1995 (Glossary)

11. http://en.wikipedia.org/wiki/Inflation

12. http://www.econlib.org/library/Enc/SupplySideEconomics.html

13. http://www.economicshelp.org/macroeconomics/economic-growth/supply-side-policies.html

14. http://tutor2u.net/economics/revision-notes/as-macro-supply-side-policies.html

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