Reference no: EM133283622

Case: Economists say that an economy is experiencing full employment when only frictional and structural unemployment exist. Frictionally unemployed workers experience a period of temporary unemployment as they transition from position to position. Structurally unemployed workers find it difficult to find employment without additional education or training.

Structural unemployment is worsened by off-shoring, when the demand for a particular type of labor shifts overseas to areas where labor costs are low. A relocation or restructuring of a large firm can also affect local populations that depend on that firm for employment. Technological change can reduce demand for existing skills, even as it creates other types of employment. In addition, recessions can decrease demand for low-skilled workers, leading to longer term deterioration in skills and labor market participation rates. Deterioration in skills and labor market participation rates are both connected with a high incidence of structural unemployment among low-skilled workers, in particular (Cunningham, 2019).

Employment encourages individuals to keep their skills current to meet workplace needs; unemployment allows skills to deteriorate. Education and occupational training builds skills and increases an individual's chance of finding employment. Individuals with higher levels of education also tend to be less likely to suffer unemployment of any variety (BLS, 2019). Recessions damage workforce preparation among workers who find themselves unemployed during this period. Research demonstrates that the number of people experiencing chronic unemployment increased dramatically during the recession of 2008-2009, for instance. Across the next 4 years, the number of people unemployed for a year or longer increased from 704,000 in 2007 to 4.3 million in 2011. During the same period, those unemployed for 2 years or longer rose by a factor of 8 (from 228,000 in 2007 to 1.9 million in 2011). From 2010 to 2012, about one third of unemployed people had been looking for work for a year or longer, and by the end of the 3-year period, the share of those unemployed for 2 years or longer approached 15% (Cunningham, 2019).

Individuals experiencing poor educational opportunities can easily become structurally unemployed. Individuals can also become structurally unemployed when they spend time away from the labor force without updating their skills. Structurally unemployed individuals may once have been discouraged workers, however, as a period of unemployment lengthens, chances that an affected individual will regain employment fall without additional investment in education and training. Income is correlated with education and training. It is estimated that 15% of worker productivity is tied to education and training (McConnell et al., p. 543).

Your Task:

In 2020, the U.S. economy experienced a recession caused by a pandemic. Numerous measures were implemented to reduce the transmission of the virus, and as a result, many firms were affected negatively. Unemployment rose precipitously, and firms were forced into bankruptcy-taking jobs with them. 
In March of 2020, General Motors Corporation (GM) asked all their workers in the city of Flint, Michigan, to remain employed with the firm as paid volunteers until further notice, due to pandemic-related decreases in automobile demand (Fonger, 2020). Workers declining this offer were laid off. Flint has a long and complex relationship with GM.

Fun facts:
Founded in 1908, GM set up operations in Flint, building upon a successful carriage factory centered in the city. In 1997, GM announced closure of its 2,900-employee car factory in Flint (Bradsher, 1997), a milestone in a trend toward continued downsizing of its operations in this area. The affected GM assembly plant's workforce shrunk following rapid increases in gasoline prices during the 1970s. Rising fuel costs eroded demand for large cars like those produced in GM's Flint factory. Flint's GM workforce fell from 80,000 to 8,000 over roughly a decade, but GM remained the city's largest employer. In 2009, it was reported that there were 4,000 vacant residential properties in and around Flint (a city of about 124,000 residents at the time). Streets were largely abandoned, property values fell dramatically, and the city's unemployment rate rose to 29% (Szczesny, 2009). Electric cars revived demand for GM cars assembled in the city, and production remained relatively stable until the onset of the pandemic.

Question:

Assume that you are a reporter at M-Live!, a Michigan radio and news outlet. You are about to break a story on GM workers' agreement to remain with GM as paid volunteers while the firm weathers a rough financial patch caused by a pandemic-related fall in demand for its products. You intend to publish a news article to M-Live!'s website to explain why workers might choose to remain with GM as paid volunteers (giving up a right to continued employment but assisting in keeping the firm afloat), rather than being laid off (without the obligation to work but eligible for unemployment benefits) during a recessionary downturn. Volunteers may continue to be paid if they choose to continue duties at the firm. Your perspective focuses on the economic causes of a decision that apparently ignores economic incentives (including paid labor with another local firm, unemployment benefits, and relocation). You assume that your audience is not composed of experts in economic topics.