Question:
Discuss about the Capitalism Employment Issues and Wage Rates.
Capitalism is a situation where the rich and the poor are not governed by one rule; the groups makes their own decision that are not regulated by the state (Hodgson, 2017. The post-industrial capitalist world has led to the increased growth on inequality. This growth is not politics based nor can it be reversed by politics. Capitalist activities are the major drivers of the alarming inequality – the increased equality of opportunities is accelerating it. This is because families, individuals and communities are different; there are richer and poor families. The ability of a richer family to grab and exploit a presented opportunity for advancement and development is higher and fast. The poor parties may be having less resources or even means to grab such an opportunity and thus are left behind and the inequality expands.
The major contributor of the expanding inequality according to Muller (2013) is the expanding of access and opportunity for the capitalists combined with the advancement in technology and economic changes. Capitalist however has opened up many development opportunities for the human potential; the problem is only that many people have not been able to take advantage of these opportunities (Rasmussen, 2016). Others have taken advantage but have not been able to progress far. There are many sectors of population whose equality of opportunity have been historically blocked by either the formal or informal barriers which prevents them from fully benefiting from the offerings of capitalism; the most affected group is the poor people, women and the minorities (Tridico, 2017). However, according to Muller (2013), these barriers have been gradually lowered or removed in the advanced capitalist world over time. The elimination has ensured that opportunities are available to all on an equal basis. The present existing inequality is argued to derive more from the inability of some group to exploit and opportunity but not on the lack of equal opportunity.
The unequal ability has many origins depending on the inherent human potential, how communities and families encourage and enable the potential to flourish. Inequality under capitalism can therefore be attributed to differences in skills and talents; but this doesn’t explain much. In the capitalism societies, the inequality of wealth is mostly as a result of inequality of inheritance (Hodgson, 2017). This inequality in wealth causes differences in income, economic power and education. The differences on the availability of collateralizable assets is also a factor behind inequality under capitalism, a wealthy person will always use the owned wealth to make profit and run ahead of the one without. The rich have collateral but the poor have no collateral to obtained loans from banks.
Unemployment is a condition where the active job seekers are having no jobs (Pasquali, 2015). On the other hand, underemployment is a condition where people are engaged in jobs that are meaningless or a few-hour job while they would like to have a full time job (Rw.one.un.org, 2016). The unemployment and underemployment rate goes hand on hand, a reduction in unemployment rate also results in a reduction in the underemployment rate. The government reports only the unemployment rate but not the underemployment rate. The unemployment rate and the underemployment rate are difference for the rich and the poor countries. However, the differences are related to the causes and the duration in which the unemployment state takes place. For the rich countries, the unemployment is caused by cyclical causes. Cyclical unemployment may be in the short run depending on the policies implemented by the government’s policy makers to control the situation. The poverty level is related to the high unemployment rate. For the rich countries, their main goal is to lower the poverty level, thus, they always target a low unemployment rate since they believe that high unemployment rate is associated with increased poverty level. This reason explains why there is low unemployment rates for the rich economies. The rich economies have high level of investment and thus there is a high rate of jobs creation. The availability of jobs explains the existence of low underemployment rate for the rich economies; when there are many jobs in which one can engage into, there is no chance for a worker doing a meaningless or a part-time job.
According to Guru (2016), the nature of unemployment in poor economies is chronic and long-term. Unemployment in the poor countries is not as a result of aggregate demand shortage. It is as a result of inadequate resources of production; the capital, land, and other complementary resources are inadequate for the whole population and the labor force. This explains why there is high unemployment rate in the poor economies. This kind of unemployment is not easily lowered by the stimulation of aggregate demand as is the case for rich economies. The poverty level is high; due to less production level and thus low demand for workers, the job seekers are force to engage in meaningless jobs just to earn a little income. This also explains why the underemployment rate is also very high in poor economies. Keynes argued that the aggregate demand for the poor nations is never sufficient to boost its unemployment status.
One of the reason for the existence of low wages but longer working hours is that most of the workers do not have sufficient skills. The rate is tied to the level of skills held by the workers; the highly skilled workers receive high compensation despite their shorter working hours. Other than the level of skills, the unemployment rate also plays part. Many economies in the world are struggling with the issue of unemployment rate being very high; this means that many citizens in every country do not have a job. Thus the supply of labor is very high; this lowers the incentive of the employers to raise the wage rate for their employees.
Since there are fixed labor hours, only the wage rate varies. Initially at the equilibrium number of workers Q*, the wage rate was W* and the supply curve was S*. The increased unemployment rate raises the supply for labor to S1. The equilibrium wage now falls to W1. Since the labor hours remain constant, the workers have to work for the original number of hours at a lower wage rate. In most cases, the wage rate doesn’t fall since laborers do not accept wage cuts, but it remains at the same level for long without increment. Cutting of wages could also affect the employee’s productivity as they wouldn’t be comfortable to wake up one day and be informed that their salary has been slashed. C.W (2015) noted that the high unemployment rate prevents the employees from demanding for wage increment; he noted that the employees would prefer pushing for extra working hours than higher wage. This is self-explanatory of the factor behind wage being so low but the working hours extended.
According to Moodie (2016) the increased economic inequality has contributed to longer working hours. Some workers in the labor market feel so financially insecure in their jobs; they thus end up working for longer hours to impress their bosses. There is also lack of proper laws governing the labor market. For instance, a person may prefer working for many hours at a lower wage rate that few hours at a higher rate. In the case of minimum wage legislation, the wage rate rises but employers cut the working hours and thus no gain to the employees. McClelland (2013) noted that lack of a job leaves one with no option but to accept a low-wage rate job.
References
C.W. (2015). Why American wage growth is so lousy. Economist.com. Retrieved 5 October 2017, from https://www.economist.com/blogs/economist-explains/2015/04/economist-explains-12.
Guru, S. (2016). The Nature and Causes of Unemployment in Developing Countries. YourArticleLibrary.com. Retrieved 5 October 2017, from https://www.yourarticlelibrary.com/unemployment/the-nature-and-causes-of-unemployment-in-developing-countries/37830/.
Hodgson, G. (2017). How Capitalism Actually Generates More Inequality. Evonomics. Retrieved 4 October 2017, from https://evonomics.com/how-capitalism-actually-generates-more-inequality/.
McClelland, E. (2013). The “middle class” myth: Here’s why wages are really so low today. Salon.com. Retrieved 5 October 2017, from https://www.salon.com/2013/12/30/the_middle_class_myth_heres_why_wages_are_really_so_low_today/.
Moodie, A. (2016). Why are Americans spending too much time at work? The Guardian. Retrieved 5 October 2017, from https://www.theguardian.com/sustainable-business/2016/jun/30/america-working-hours-minimum-wage-overworked.
Muller, J. (2013). The Hard Truth about Economic Inequality that Both the Left and Right Ignore. PBS NewsHour. Retrieved 4 October 2017, from https://www.pbs.org/newshour/rundown/the-hard-nut-of-economic-inequality-what-the-left-and-right-both-ignore/.
Rasmussen, D. (2016). The Problem with Inequality, According to Adam Smith. The Atlantic. Retrieved 4 October 2017, from https://www.theatlantic.com/business/archive/2016/06/the-problem-with-inequality-according-to-adam-smith/486071/.
Rw.one.un.org. (2016). Cracking the Unemployment and Underemployment Challenges – What have we learnt and What Progress has Been Made to Date? Rw.one.un.org. Retrieved 5 October 2017, from https://www.rw.one.un.org/press-center/op-ed/cracking-unemployment-and-underemployment-challenges-%E2%80%93-what-have-we-learnt-and.
Pasquali, V. (2015). Unemployment Rates around the World. Global Finance Magazine. Retrieved 5 October 2017, from https://www.gfmag.com/global-data/economic-data/worlds-unemployment-ratescom.
Tridico, P. (2017). Inequality in Financial Capitalism. Florence: Taylor and Francis.
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