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Assignment 5: Economic Policy Recommendation

Assignment 5: Economic Policy Recommendation Arlene Miller Dr. George A. Uhimchuk ECO 405 Economic Problems and Issues December 8, 2011

Assignment 5: Economic Policy Recommendation One economic problem our class has discussed throughout this term is unemployment. Some factors to take into consideration are several people are out of work due to plant closings, layoffs, and downsizing, companies have outsourced due to lower compensation cost and wage rates. Another factor to take into consideration is the North Atlantic Free Trade Agreement (NAFTA) between United States, Canada, and Mexico. According to the Office of the United

States Trade Representative, formed as of January 1, 1994, NAFTA called for the elimination of duties and the phasing out of tariffs over a period of 14 years. Trade restrictions were removed under NAFTA from such industries as motor vehicles and automotive parts, computers, textiles, and agriculture (Martocchio, 2011, pgs 357 & 359). One main factor that led to unemployment is that companies are outsourcing or off-shoring due to competitive strategies. Companies look for ways to reduce labor and lower cost. For companies to stay competitive in the market, it utilized many alternatives and cost-effective strategies that in turn have led to high unemployment in the United States. The major impact to society of the problem of unemployment is people who are unemployed become dependent financially and health wise on government assistance. The government must assist people due to unemployment with basics such as shelter or housing, food, financial assistance, and medically to sustain people at their minimum of needs. Then the government goes to stimulus programs, assistance programs such as SNAP, housing authority, and health care programs such as Medicare and Medicaid. These programs come at the expense of the taxpayers dollars. The costs of unemployment are not simply financial. In our society, a persons status and position are largely associated with the type of job the person holds. Losing a job can impose severe psychological costs. Some studies have found, for example, that increased crime, divorce, and suicide rates are associated with increased unemployment (OSullivan,

Assignment 5: Economic Policy Recommendation 2008, pg 313). Another major impact to society is the cost to the government in the form of

unemployment benefits paid to the unemployed and in lost tax earnings, which in turn means less spending in the economy and less revenues for companies. A proposed economic policy solution to the problem of unemployment is a flat tax, which is an income tax system in which everyone pays the same tax rate regardless of their income (Moreno, n.d.). This solution was also proposed by Republican Governor Perry of Texas as a solution to the economic policy problem. Another proposed economic policy solution to the problem of unemployment would be to stop sending jobs overseas and exporting more and importing less. The United States imports more than it exports. Mexico has the lowest hourly compensation cost, which attracts companies from the U.S. to import more in at a lower cost. How the economic theory policy would work would be unemployment occurs when wage rates are too high, that is, above competitive levels. The solution to unemployment is to expand demand, or, if competitive forces are operating, to rely on automatic market forces to drive wage rates down to the level at which the amount of labor demanded equals the amount supplied (Sharp, 2010, pg 373). The economic theory policy refers back to exports and imports by importing less and exporting more the U.S. is able to keep lobs local and not abroad or overseas. By companies reinstituting manufacturing and cultivating our own agriculture such as fruits and vegetables international program, livestock and seed international program, and by not importing and shipping products overseas this will put people in our local community and economy back to work. Another example how economic theory policy would work by growing new business locally and not sending abroad or overseas, such as service call centers, financial institutions, insurance companies, communications, and computer companies that are now sent to third world countries, need to be brought back home to America. History speaks for itself,

Assignment 5: Economic Policy Recommendation

textiles, manufacturing, automobile industry first started going overseas due to emerging markets or competitive markets and now lower costs and labor play a major factor why some companies go overseas. By applying the economic theory policy history should not have to repeat itself or trend in the overseas market. The economic policy I propose that would impact the market or solve the economic problem is the flat tax system in which everyone pays the same tax rate, which would help with the unemployment problem. By everyone contributing, the money is going back into the economy, which creates spending, business opportunities and growth for new businesses to develop. When the economy starts re-growing and developing it puts people back to work and creates job opportunities and new business ventures which in turn makes people feel more self reliant and more independent. This also helps people spend more and put money back into the economy. By exporting more and importing less the U.S. is able to keep jobs local and not send them overseas. This helps create jobs and business growth in the economy.

Assignment 5: Economic Policy Recommendation References Jones, J. (2008, September 23). The impact of unemployment on our society. Retrieved December 7, 2011, from Helium website:

Martocchio, J. (2011). Strategic Compensation: A Human Resource Management Approach (6th ed.). Upper Saddle River, NJ: Prentice Hall. Moreno, T. (n.d.). What Is a Flat Tax System? Retrieved December 5, 2011, from website: O'Sullivan, A., Sheffrin, S. M., & Perez, S. J. (2008). Principles of Economics (3rd ed.). Upper Saddle River, NJ: Prentice-Hall, Inc. Reasons for Unemployment in the US. (n.d.). Retrieved December 7, 2011, from bizymoms website: Sharp, A., Register, C., & Grimes, P. (2010). ECO 405: Economics of social issues: 2010 custom edition (19th ed.). Boston, MA: McGraw-Hill. The Economic Context of Business: Employment and Unemployment. (n.d.). Retrieved December 7, 2011, from biz/ed website: