Structural Stagnation Dilemma





Structural Stagnation Dilemma


Structural stagnation is the presence of high levels of unemployment, soaring exchange rates and a decline of labor output in the economy for an extended period. However, secular stagnation is a condition of minimal economic growth found in a market-based economy resulting in high per capita incomes.

Causes of Stagnation

Technological changes have increased the demand for sophisticated items leading to an increase in the mass production of goods since most of these devices replace workers leading to a rise in unemployment. Likewise, stagnation is caused by the frequency of a country having trade deficits while it lacks adequate exports to augment its cash reserves. Furthermore, the rise in the level of inequality limits the amount of economic growth while exposure to poor but expensive education levels is another factor as well (Szirmai 564). In the latter, governments spend vast sums of money in education initiatives yet the same graduates do not receive gainful employment. Hence, they cannot positively contribute to the improvement of the economy, for example, through the payment of taxes.

Challenges of the Dilemma to Employment and Macro policy

The high demand for technologically advanced products and services has created a similar level of interest in the hiring of people with these skills in order to facilitate the operation of these machines. Nevertheless, this has led to the firing of other employees whose work is performed by the machines. Thus, there is a challenge to retain as many workers as possible without embracing redundancies that increase administrative costs. In addition, it strains the implementation of the retirement age and pension policies, as many people stay without jobs for long, while relying on welfare programs.

Impact of Technological Change to Employment and Economic Growth

While changes in technology lead to efficiency in service delivery, their substitution for manual labor reduces productivity. The loss of labor through layoffs reduces the level of intellectual capacity required to make further modifications as few people specialize in the respective disciplines. However, the creation of profitable enterprises through these means boosts economic growth although this will largely depend on its sustainability.

Globalization and the Creation of a Safety Net

Globalization’s effect of pulling millions of people in China and India out of poverty cannot be evenly equated to that in the United States since all have varying inequality gaps. Consequently, the income difference in the US is lower than the other two countries hence fewer citizens have benefited from such phenomenon. Since globalization leads to the wealth increment for a few individuals and organizations, there has to be a safety net for the vast majority who will be affected by it and other technological changes (Watkiss 1).

Therefore, they need to be offered health care services at subsidized costs and paid for by the government. Health is a vital component of a person’s well being since it prolongs his/her life thereby extending the time for one to be productive. Despite their lack of employment, there are opportunities for informal jobs, which such citizens can seek and receive wages for a temporary basis. By so doing, they would cater for themselves and their families as well. The state should pay for this service since it has an interest in the long-term development of the nation through a higher life expectancy. Regardless of their current condition, these people may undergo training in the future and acquire skills that could prove useful in different sectors of the economy. Additionally, incentives should be offered for them to join various industries in order to enhance productivity and reduce economic stagnation.









Works Cited

Szirmai, Adam. Dynamics of Socio-Economic Development: An Introduction. Cambridge, UK: Cambridge University Press, 2005. Print.

Watkiss, David. “Rethinking Technology and Employment.” World Economic Forum, 25 January 2014. Web. 8 July 2014.


















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