The article talks about the increase in the rate of youth unemployment in South Korea from 8.2% in November 2016 to 8% in October and 7.4% a year earlier according to Statistics Korea in the article. (Unemployment is the condition of someone of working age (16-64) who is willing to work, actively seeking employment, but unable to find a job). As indicated in the article the main cause of the unemployment is the political protests and paralyzed govt. which has resulted in economic slowdown and instability in South Korea, therefore the this unemployment can be known as the cyclical unemployment. (Cyclical unemployment is a “factor of overall unemployment that relates to the cyclical trends in the growth and production that occur within the business cycle”). An economic slowdown means that there has been decrease in the public and private expenditure and which finally decreases the aggregate demand. As they have clearly stated that manufacturing companies have shed jobs. The decrease in aggregate demand causes the fall of production of the firms resulting in lower demand of labor therefore an increase in unemployment.
Figure 1: UNEMPOLYMENT IN SOUTH KOREA
Through the graph we can observe that there has been a shift from AD to AD1 due to the economic slowdown in South Korea which had led to a decrease in the purchasing power of people, causing aggregate demand to decrease. This results in the fall of real GDP from Yfe to Y1 and also a decrease in average price level from Pe to Pe1. These situations will affect the economic condition of South Korea and would be depicted through the decrease in the labor demand from ADL to ADL1 which leading to increase in unemployment.
This cyclical unemployment will affect all the individuals in an economy negatively. This is because the unemployment diminishing the purchasing power and therefore they spend less, making the living standards poor. Also the people working would have extra pressure as there is extra supply of labor. This can cause the people to migrate into different countries to find job and better opportunities. This will adversely affect the economy as they would be in a lack of skilled labors in long run. The domestic producers and the firms would earn less profit and which would make them not invest leading to more of economic slowdown. There would also be a negative effect on the government as the tax revenues now would be less due to unemployment also there would be a decrease in the public expenditure. As would be used up for unemployment benefits. This whole process circle would make aggregate demand fall and would affect everyone negatively.
However, there is some hope in the manufacturing of agriculture and fishing as in these sectors the jobless rate has decreased from 3.7 to 3.6 in October. Also South Korea being the fourth largest economy in Asia can easily overcome this worry of unemployment before it becomes a big issue. In the short run both expansionary fiscal and monetary policies can be used by the government. Purchasing power would increase through the decrease in the taxes, which ensures the radical increase in the aggregate demand. By lowering the interest rate the motive of consumers to save would be diminished and they would spend more and invest more. Thus overcoming the problem of economic slowdown. There would also be a positive effect on the producers as would be motivated to produce more which will require more labor and thus unemployment would be controlled.
Figure 2: EFFECT OF DEMAND SIDE POLICIES
Through the graph we can see that due to the use demand side policies the aggregate demand had increase from AD1 to AD2 and also the increase in the average price levels from PE1 to PE2. Furthermore there has been an increase in the demand of labor from ADL1 to ADL2. And also the level of unemployment decreases.
On the other hand the demand side policies can cause a stagnant increase in the aggregate demand and aggregate supply which could cause demand pull inflation in long term. Also the excess of government expenditure could have a crowding out effect and could cause a fall in investments. Therefore the demand side policies are efficient in short run while the supply side policies can be used in long run.
In conclusion the South Korean government should control the political issues and appoint a working government, and ensure the unemployment rate to be decreased as this could be reason of the slowdown of the economy. The government should use demand side policies in the short run while supply side policies can be used in long run.