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Macroeconomics Article Commentary Essay

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The worst problems surrounding youth unemployment in Scotland are not over, a Scottish Government Minister told MSPs today.

Despite statistics showing a rise in jobs on offer, Minister for Youth Employment Angela Constance said that such a claim would be foolish.

She said that improvements in Scotland’s economy would resolve some problems of getting young people into work.

But she added that, in the long-term, work is needed to help those facing “considerable barriers”.

Constance’s remarks came as she appeared before Holyrood’s Education Committee to answer questions on the Scottish Government’s Youth Employment Strategy, and ahead of the publication of the latest job figures tomorrow.

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Figures show that 102,000 young people are currently unemployed in Scotland. That represents around one in four of those aged 16-24 who are economically active.

“Given the recent economic indicators that suggest things are slightly improving in terms of vacancies, do you think we’re over the most challenging year, and have met the greatest challenge?”

Ms Constance said she would not be “foolish enough to look into her crystal ball” and make such predictions. “We’ll deal with what comes our way,” she said.

Pressed by Labour MSP Neil Bibby on whether she believed there is a youth unemployment crisis in Scotland, Ms Constance said: “What I believe is that we need to be in this for the long haul.”

She told MSPs there were around 20,000 young people from disadvantaged backgrounds who face “considerable barriers to getting into work”.

“When we think of youth unemployment, some of that will be resolved when the economy picks up and gets better,” she added.

“But youth unemployment is always two and a half to three times higher than all-age unemployment.

“There is always an issue there that we need to tackle and it is long-term action we need.”

IA Commentary #2:

Youth unemployment requires long-term action

Just like a majority of all countries, Scotland is facing struggle in their economic recovery after the recession. The problem being addressed in the chosen article speaks about the youth unemployment crisis that is occurring in the country. Demand in the consumer sector is not what the main problem is. Apparently, the youth (age 16 – 24) have reached unemployment (ability to work but don’t have a job) rates of 25% due to “disadvantaged backgrounds”. This can most likely be assumed that these people have had a lack of education and do not have the sufficient skills to apply for the desired jobs. This could be labeled as a ‘skill mismatch’ between workers’ skills and employers’ needs. Unemployment can have a significant negative impact on a country’s economy and society.

As the unemployment level rises, the more people are eligible for benefit payments (money given to the unemployed to consume basic necessities) which take away from the government’s revenue and spending power. Secondly, and most importantly, unemployment can cause a waste of resources and reduce the nation’s output which will lower the economy’s GDP. With this loss of the nation’s output, the economy will be producing within its PPF (Production Possibility Frontier: ability to produce ALL available resources efficiently) and lowers/decreases economic growth. The following labor market diagram can depict what unemployment the market is facing.

As seen in the diagram, the labor market is shown in a simple AD/AS model. At Qe, the labor market is at equilibrium as the demand for labor matches the supply. Though, in this case, the supply of labor has decreased causing the AS curve to shift leftwards. This shows that the market is not running at full efficiency as production is being hindered. The resource of workers are not being allocated at high efficiency because they are lacking the factor of production of education. These factors of production are inputs that are used in the production of goods/services.

The suggested solution of the article is to seek ‘long-term’ action to regain the loss of supply/productivity in the skill deprived market. Government intervention seems to be the solution to correct those workers facing ‘considerable barriers’ or lack of education. The reallocation of the government fiscal policy to boost economic activity will have to see a greater percentage of revenue towards the education sector. The fiscal policy is the use of the government expenditure and taxation to manage the economy. In this case, a supply-side policy will need to be rearranged to improve the quality of resources which would education in this situation.

A period of economic austerity will definitely be needed as the government will be forced to lower discretionary spending (expenditure that is adjusted annually) in other sectors to assure that the current and future youth have better education and provide the economy with better qualities of production. Using the same labor market diagram, you will see the result of increasing the quality of the factor of production (education) as the supply of ‘able’ workers rises back to equilibrium.

The diagram shows the effect of re-allocated supply-side fiscal policy (policies to alter the level of supply to create a stable economy) towards increased spending for the education sector. The government can lower the number of un-educated workers/youths that lack adequate skills by subsidizing education and implementing better training for jobs. Currently, the aggregate supply for young Scottish workers lies on the ‘AS Labor’ curve as firms can’t hire the un-skilled workers.

This leads the real GDP, or the output of the country to be lower as goods and services aren’t being produced at maximum efficiency due to the lack of workers. The long-run solution that is alluded in the text would definitely be to improve the education system because currently the economy is running on spare capacity (producing at less than maximum efficiency). The economy would have to bare with the supply crisis until the workers have acquired the adequate skills.

If the re-evalution of the fiscal policy is used by the Scottish government, then they can potentially fix this skill-mismatch issue and avoid disastrous economic problems. Lastly, to ensure economic safety, the Scottish government should restrain from borrowing money and spend money on other projects to allow them to fix their problem. This could hinder the development in other sectors as the money available to them should be placed towards education.

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