Chapter 8 - Stabilization Policy

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Automatic Stabilizers Help Increase Consumer Spending in Recession

Summary
There has been a decline in employment in manufacturing, construction, retail and financial services. In the first quarter, there was an increase of 2.2% in consumer spending while 700 000 jobs were lost over the three months of the quarter. John Silvia, the Chief Economist wonders if the economy was affected by the low employment and the consumer spending or were households over-saving? Recently, employment insurance and reduced income tax payments contributed to enormous income gains for households to ease the recession. As well, transfer payments such as welfare, social security and disability also have increased more than what was expected.

Connection
In Chapter 8, the definition for automatic stabilizers are government programs react automatically to help adjust the level of aggregate demand during changing economic conditions. The article introduced the two most recognized automatic stabilizers which were the employment insurance and the progressive income tax. While employment was declining, an increase of employment insurance contributed to enormous income gains for households to ease the recession. The textbook explains that since individuals are unemployed, their spending decreases, the multiplier effect initiates and overall spending in the economy declines. By receiving some money in the form of employment insurance benefits, it encourages consumers to spend more. Lastly, a reduction in the progressive income tax means that a lower percentage of income in taxes is paid. It provides the individual with a greater proportion of income to spend.

Reflection
It is amazing how automatic stabilizers can still stabilize the economy that is in a recession. It is good sign that these automatic stabilizers are successful contributions that helps increase 2.2% in consumer spending when there are so many job losses. With the rise in overall spending, the unemployment should be seen more of a concern. I believe that the increased spending will slowly take an effect on creating a demand for more workers, which can reduce the level of employment. Hopefully, consumers will gain the confidence in boosting the employment growth. It sounds likely that the worst of the economy may soon be over.

Chapter 5

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Lost Jobs In BC

Summary
In January’s worst record, 68,000 BC full-time workers lost their jobs. From Statistics Canada said that most of these workers were from manufacturing and construction sector and was counterbalanced as an equivalent by a gain of 33,000 part-time positions. BC’s unemployment rate has risen from 3.8% in March 2008 –all-time low record to 6.1% as of now. The highest unemployment rate known in BC records was 14.1% in 1987. The Canadian economy was affected by a lost of 129,000 jobs in January which consisted most of full-time workers.

Connection
In Canada, the employment rate statistics are released every month. The unemployment rate is defined as the percentage of the labour force that is not working, yet is looking for work. The increase in unemployment rate is not necessary mean it’s a good indicator of the economic hardship that Canadians are facing. In Canada, the employment insurance program provides monetary benefits to people who cease to be employed. Those eligible to collect benefits are people who have been terminated or laid off from their job, who are able to work because of illness or who qualify for maternity benefits. In order to qualify, a person must have been employed and have made contributions to the employment insurance fund. The contributions are automatically deducted from earnings at the person’s place of employment.

Reflection
I believe that the unemployment rate will continue to rise since the recession has begun at the start of 2009. There are many factors that influence this change, which can include changes in the composition of labour force, changes in the employment-insurance program, changes in oil prices, changes in technology and the changes in the pattern of world trade. I think that the employment insurance program is regarded as an income supplement and not as temporary income assistance between jobs. The solution to the unemployment probably depends on the number of vacancies available. If there are no jobs available, then jobs will need to be created. If jobs are available, then a way will have to be found to match the unemployed workers to the available opportunities