For this week’s reflection post, I’ve decided to attempt answering PTJ’s question from another perspective: What factors other than employment management can cause a country to have a high unemployment rate? How can these be solved? I brought up the case of South Africa and the wage subsidy experiment on Thursday, but the fact that minimum wage is widely recognized as the only employment approach is not the only reason why some countries have such a high unemployment rate.
A country’s demand for employment is very elastic, meaning it is very much affected by the labor supply. It depends predominantly on country productivity. A country whose importations outweigh exportations by a wide range or whose physical capital is deficient is more prone to a high unemployment rate. Along the same line, human capital, infrastructure, value of the country’s output and the quality of government also affect how productive a country can be. I see these as each of the legs on the table; if one of these aspects is deficient, the whole country seems affected, making it nearly impossible to deduct the most important. Nonetheless, it is easier to predict which one has the most impact if lost, and personally, I think capital obtains that place. Capital, meaning both human and physical, is very decisive when it comes to labor productivity given that the skills an individual brings to the workplace along with the technology available to facilitate employing the use of these skills make up the majority of the percentage needed to develop labor supply. For example, in a primitive society composed of three people -- one who specializes in food, one who specializes in shelter, and one who specializes in medicine—each one brings their knowledge and skills to the workplace and is able to produce labor by using the tools pertinent to their task, in this case either farming ground, cement and shovel, and medicinal plants, but if one of these two were to be deficient or lost, it would be much harder for an individual to produce labor. My case, however, is effective in a small society, as is the moral economy theory and the wage subsidy experiment, but in a large society, like a country’s usually is, it is much more complicated than I have proposed. In a large country, even though human and physical capital continue to be important, value of output, infrastructure and government quality outweigh the costs. What I consider most important of these three in a country’s development, and is yet the most controversial, is the value of output because even if a country has a high quality, non-corrupt and efficient government, and innovative infrastructure, the value of their exports in the market will determine the profit the country makes. If the exports aren’t valuable in the market, the country’s revenue will inevitably reflect more loss than profit, justified by the demand for the product being either very elastic or just not a necessity. Now that I have talked about all the other causes for the high unemployment rate based on the country’s productivity, I think it is safe to assume, and even more logical, assume that countries with high unemployment rates are, or should be subjects of government renovation. As a Puerto Rican, I would say, “Send them a fiscal control board!” because, you know… but, as an International Relations student, I would suggest an alternative to the current employment approach. Wage subsidies failed to produce exorbitant changes in South Africa because of a deficient human capital in the workforce. In order for wage subsidies to work on a larger scale, they would have to be followed by training courses and sponsored by inelastic companies. In other words, another approach for decreasing, and possibly eradicating, the unemployment rate in countries where it is high, would be to prioritize human and physical capital by employing education programs and having inelastic companies –which the government could act as one if it were of high quality – invest, sponsor and supply the pertinent physical capital in order to facilitate prosperity.
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December 2018
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