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Saturday, September 10, 2011

Why unemployment is rising in USA?

Rising unemployment in USA is clearly giving a whiff of slowing growth of US economy, though it is considered to be a lagging indicator.
Companies announce layoffs much after the worsened economy and abstain from new hiring until economy improves substantially. Unemployment increases during the recession phase of the business cycle.
Higher unemployment leads in lesser tax for the US government and further slowdown in the economy. In the month of August, almost negligible jobs were generated in the USA.
Why unemployment is rising in USA?
1.       Lesser demand: lesser consumer and business demand for the goods results in deferring of capacity expansion plans and hinders the new job creation. Fear of recession makes citizens and businesses to spend less and save more for the uncertain future.
Post 2008 economic turmoil, new job openings are down by 33% than the pre-crisis period.
2.       Layoff plans rolling out from fed government and local government departments. Government is shutting down jobs under cost reduction measures.
3.       Manufacturing Jobs are moving out to countries like China and Mexico to avail low cost advantages like cheaper labor, low transportation costs, low raw material costs.
4.       IT & ITES jobs are being outsourced to countries like India and Philippines. India has got 65 % worlds IT companies with CMM (capability maturity model) 5 certification. CMM is the highest quality certification in the software industry. India offers high quality IT services at much cheaper cost.
5.       Technology and automations are killing jobs. With the advancement in the technology humans are being replaced with machine and this is not restricted to USA only but it’s a global phenomenon.
6.       US economy is not picking up despite near-zero interest rates and the government is rolling out one stimulus package after another. So, Businesses prefer to sit on cash than to invest it for the capacity expansion which plays a vital role in the creation of the new jobs.


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