SOLVING THE PROBLEM OF UNEMPLOYMENTEva Lorenčič
, 2013, undergraduate thesis
Abstract: Unemployment negatively affects the government budget and inflicts costs on the unemployed individuals as well as on the society as a whole in many ways. The direct costs of unemployment for the state budget arise due to the benefits paid out to the unemployed, and due to foregone direct and indirect taxes. On the level of an individual, nonmonetary costs are a multiple of the monetary ones, which indicates that employment plays a central role in a person’s well-being. Unemployment has a spill-over effect on the society as a whole and affects not only the unemployed, but also the employed population, particularly in the areas experiencing high unemployment rates.
We take the case study of Germany, the country often used as a quintessence of how to overcome the problem of massive unemployment. Before the four Hartz reforms, which were implemented in years 2003, 2004 and 2005, Germany was characterized as the »sick man of Europe« owing to its exploding levels of unemployment, dysfunctional labor market, unsustainable social budget, and rising public debt. As the reforms were put into force, the situation in the German labor market underwent a 360° turnaround and became portrayed as the »German economic miracle«. The true effects of the reforms fully transpired in the economic and financial crisis of 2008/2009, when most countries experienced escalating unemployment rates, while Germany kept them at bay. Studies show that flexible working-time arrangements and short-time work have played a major role in inhibiting lay-offs in German companies during the recent crisis, and hence in preventing a spike in unemployment rates, which we use as one of the points that validate our Model of employment. The government subsidies made it possible for companies to reduce the working hours of their employees instead of laying them off. An important feature of the German labor market is a comparatively high percentage of part-time workers (around 25% in years 2006–2011), which also explains the low unemployment rates Germany has been recording since the reforms were introduced. The reforms cut the amount and duration of unemployment benefits, which gave the unemployed more incentives to find a job. A negative aspect of the reform may be an increased divide between the core work force and the marginal workers, which intensifies social differences and is currently on the agenda of German politics. Also some researches stress the importance of social cohesion and that the risks and opportunities in the labor market should be more evenly distributed. In the accompanying explanations to the Model of employment, some of the successful measures of Germany’s Hartz reforms may be spotted, while at the same time we avoid the »mistakes« of these reforms, thus making sure that social differences among people would narrow down upon the real-life implementation of the Model.
When the number of job vacancies sharply exceeds the number of unemployed, and when there are poor prospects of new job openings in the near future, the only viable solution to the problem of unemployment is to reduce the working hours of the existing employees. The Model of employment that we develop represents a possible solution to the problem of unemployment and thus addresses the need to reduce the costs of unemployment to the unemployed individual, to the state budget, and to the society as a whole. The crux of the Model is a re-distribution of the total number of workplaces and total annual working hours among the »new actively employed population«, which comprises all persons having the potential to become or stay employed or self-employed in a given year. The model allows for a flexible arrangement of working hours – from four and up to eight hours per employee per day. Our solution will release the working hours, make them available to the currently unemployed, and hence ensure a more equitable distribution of income and work load amongst the population. In addition, as the workers will be less tired and stressed-out, their productivity will in
Keywords: unemployment, labor force, labor market, part-time employment, full-time employment, labor market flexibility, costs of unemployment, Hartz reforms
Published: 30.08.2013; Views: 1435; Downloads: 129
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