During the Great Depression in 1930s, the unemployment rate increased significantly that lead to many problems and changes in the world’s economy. John Maynard Keynes, a British economist, had come up with a solution which could reduce unemployment. He noticed that when people received a low amount of salaries, they spent less, fewer goods were produced and the economy would go down. Keynes suggested that the government should get involved to solve the problem. As of today, Vietnamese people are facing the high unemployment rate, especially the young generation. This paper will discuss the Keynes’ theory and how it can be applied to help one of the most important factors contributed to the economy of Vietnam – the labor. Understanding:
At the beginning of the Great Depression, the biggest economic crisis of all time, many banks had to close and it also affected businesses because of the stock crash. People lost their houses, money, jobs and the whole economy fell down significantly. During this darkest time, millions of people were unemployed because companies could not pay them. They could not find any job so they travel from place to place, along the US. Many people had to suffer loss, homeless and even famine. Seeing the situation was getting worse, many economists tried and planned many solutions to solve this problem. One of them is John Maynard Keynes, a British economist, suggested that all the companies should reduce wages so that they can have more money to pay the workers. Also, he came up with the idea that the government should get involved by spending deficits to cover the loss. At first, his idea received many disagreements because the others thought it would be more complicated and some people simply do not trust the government. This theory is opposite with Adam Smiths’ classical theory, which is “the invisible hand” pushing the market. However, the economy at that time could not recover itself. When people are unemployed, they would spend less on buying goods and the whole market would collapse. According to Keynes’ theory, if wages are reduced, the company will have more money to pay for the workers. And if the workers get paid, they are willing to produce goods and spend money for their livings. Therefore, the economy will run again. He believed that recession and the high unemployment are caused by insufficient spending in the private sector. As a result, to achieve full employment and sustained economic growth, the government needs to actively intervene to increase spending, if necessary through deficit financing. The labor is also a scarce source that defines the health of one country’s economy. This is a law of all time. Many businesses nowadays are established with modern equipment but they are still on the way to go bankrupt. One of the main reasons is: the lack of human resources management. Economists have considered this as a major issue. If a country does not have a good approach on this path, they may lead the economy into trouble. In my opinion, John Maynard Keynes’ theory also can be applied in today’s world. There are two main advantages.
Firstly, according to Keynes’ solution, people can be full employed by government’s spending can reduce unemployment rate effectively and improve people’s living standards. As mentioned above, labor is always an important factor which contributes to the pathway of the economy. When the rate of population is booming (yearly growth accounted for 1.10% - 2013, according to Geohive 2000-2013, current world population), there will be a shortage of jobs to offer, people have no choice but stay at home and apparently, they spend much less for their livings. Moreover, if companies pay less than the amount that the workers can produce , they will independently quit the job and find a better one. This also leads to the unemployment rate. However, with the government’s support, with current spending (expenditure wages and raw materials) and...
References: Lai Thin, 2013, ‘Young people facing high unemployment’, May 9th, The Voice Of Vietnam, viewed on 15th July 2013, < http://english.vov.vn/Society/Young-people-facing-high-unemployment/260124.vov>
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