The word "unemployment" refers to the state of joblessness. Unemployment brings to mind many negative images: soup lines, unpaid bills, hunger and poverty. Every capitalist economy has some unemployment, even those that are strong and productive. In times of American prosperity, there have still been a percentage of unemployed individuals. What causes unemployment, and what can be done to solve it? Different economists have different ideas, but nearly all of these ideas fall under one of two categories. The first is called laissez-faire; the second is called the stabilization theory. During the history of the United States, two different bills have been passed to deal with the problem of unemployment. These are "The Full Employment Act of 1946" and "The Personal Responsibility and Work Opportunity Reconciliation Act of 1996". The names demonstrate the contrast between the two categories.

CS Question #1: What is unemployment?

Before 1946, the federal government's policy was to have little interference in the economy. However, the Great Depression changed that policy. In the past, lowering interest rates increased borrowing. This caused an increase in investments. Increased investments in turn created a growing and strong economy. During the Depression however, the government couldn't help by merely lowering interest rates. It became obvious that traditional ways of fixing the economy would not work. The government felt it had to enact different policies and programs to improve the economy. The Full Employment Act of 1946 stated, "the Congress hereby declares that it is the continuing policy and responsibility of the Federal Government to promote maximum employment, production and purchasing power."

CS Question #2: Why did the government enact the Full Employment Act of 1946?

This government policy change was also due to the writings of economist John Maynard Keynes. Keynes argued that a capitalist economy did not generate full employment or stable prices. He felt that the government had to intervene and that it was their responsibility to create jobs through investments, entitlements and public work projects. He believed that the government should pursue policies to stabilize employment and the cost of living. This would stabilize the economy to ensure full employment and growth in production. This theory is known as the stabilization theory. Keynes argued that it was the responsibility of the overall economy to create jobs, not the responsibility of the unemployed to find jobs.

CS Question #3: Who was John Maynard Keynes, and what is the stabilization theory?

Since that period, many social programs have been initiated and maintained in the United States. However, many individuals disagree with Keynes' stabilization theory. They feel that entitlement programs are too expensive to maintain. They believe this creates an environment where workers and businesses pay high taxes, slowing the growth of the economy. They also argue that social programs create a population that is dependent on welfare. In theory, if the government stopped paying individuals to be unemployed, then individuals would have no choice but to find work. An unregulated economy would create jobs and eliminate the need for government social programs. This type of economy is known as laissez-faire, a French term that means "let it be." In a laissez-faire economy, there is little to no government intervention in the economy.

In 1996, Congress passed The Personal Responsibility and Work Opportunity Reconciliation Act. This act is also known as the welfare reforms of 1996. The bill showed a radical shift in attitudes toward entitlement programs. It cut back on spending for many social programs and eliminated others. The welfare reforms mandated an end to direct federal welfare. Instead, they gave block grants of federal funds to state welfare programs. The reforms also:

• cut $23 billion from the food stamp program
• cut $3 billion from child nutrition programs
• banned most legal immigrants from federal or state assistance programs for their first five years in the nation
• made work a requirement within two years of receiving assistance

The responsibility for finding a job was shifted back to individuals. Laissez-faire economics had returned to the political scene.

Unemployment is a difficult issue on every level. Capitalist economies suffer from unemployment. In a market system, unemployment is always at the mercy of supply and demand. When demand for labor is low, unemployment increases. A complex interaction between government, business and the population determines the levels of growth and employment within an economy. Will the free market create such a strong economy that full employment will be possible? Do social programs for the unemployed create a dependence on the government? These questions will continue to be asked for many generations.

CS Question #4: What theories motivated the welfare reforms of 1996?

Further Thought:

1. How does economic prosperity affect attitudes toward unemployment?
2. How does economic difficulty affect attitudes toward unemployment?
3. Can you think of a national, state or local politician who supports the stabilization theory? Can you think of a politician who supports laissez-faire?