Custom «Unemployment Effect on the Economy» Essay Paper Sample

Unemployment Effect on the Economy

This paper examines various effects that are caused by unemployment in a country or the world at large. Its main focus is on how unemployment affects the economy. To address this issue, the paper looks at the definition of unemployment, causes of unemployment, effects and what the governments should do to address the issues of unemployment in the world.


Unemployment is a term that is used to refer to a circumstance where an individual is out of job or where a person is ready and available to work, but there is no work available. For most economists in the world, escalated levels of unemployment are expensive both individuals and families directly affected and to the local and regional economies and the economy. Unemployment has both economic and social effects. Unemployment is considered to be a major problem in the society today (Ip, 2010). High rates of unemployment mean that many resources will be wasted, and the levels of income of individuals will drop at a high rate. This circumstance increases the economic recession, affects people’s feelings and their daily lives. Unemployment has great effects on national development. Not all individuals who do not have a job are unemployed. This is from the details from the Bureau of Labour Statistics.  For an individual to be regarded as part of the unemployed category, he or she has to have participated in an active search for employment at least for one month. If an individual was laid off and is waiting to be recalled for employment he or she still falls under the category of the unemployed. If an individual has not been looking for work or he or has given up looking for employment, he or she is not included in the category of the unemployed. Most people argue that the rates of unemployment in the world are high since it should put into consideration all discouraged workers who have given up looking for employment.

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Causes of unemployment

Unemployment is caused by many factors that have been given by various economists. May economist will give different reasons and interpretation of unemployment due to different economies and the theories used. Unemployment results when there are high demand rates yet the economy is performing the way below the economic growth and the output.

Inflation is the first old cause of unemployment. Inflation is the continued rise in prices of various commodities in an economy. If the prices of these economy’s products increases, it makes them expensive to the potential buyers within and outside the country. The exports will therefore reduce and its impact is huge to the economy. The reason is that the producers or companies will experience reduced sales or revenue, hence the incomes and profits reduces as well. On the worst case, the company may be operating at a loss hence the resulting effect, as a cost cutting measure is to retrench or fire employees. This increases the rates of unemployment in an economy (Macesich, 1997).

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This is the main cause in an economy of unemployment. When a country is experiencing recession, the level of trade is way below the economic growth, as well. The economy is unable to meet the demands of various sectors. Recession is always a global crisis that hits almost all the countries especially the developing economies. The resultant effect of this will be laying off employees. The unemployment will rise until when the economy starts to grow again.

Welfare payments

The government gives these grants to the unemployed people in an economy. These people will consistently rely on grants and hence reluctantly refuses or continue as an unemployed. These grants are suppose to act as incentives, for the unemployed, to sustain themselves as they look for a job, but many citizens register for such grants yet they have no intentions of searching for a job. This makes people willingly enjoy the state of being unemployed since they still get their necessities.

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Decreasing in demand

When people are not able to demand or buy the output from various companies, results in a reduction of the production. This leads to a further firing of employees increasing rates of unemployment.

Technological advancement

With the improvement in technology, various techniques are incorporated to be utilized in an economy or industry. This results in a demand for highly skilled staff that are able to adopt and use the techniques hence hiring of experts to fill in the positions. The existing employees will be of no use to the company due to lack of work to do hence many of them will resign due to frustrations. This is a seasonal unemployment experienced in most companies.

Job dissatisfaction

When an employee is not contended with the job, he will one day quit even if to go and stay at home. Being satisfied entails self-growth and motivation to deliver as expected without being followed by the boss. The job could have been on a temporary basis which the employee had taken to gain the skills required in his field of study and once all that is attained, he gets dissatisfied hence quit increasing the rate of unemployment.

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Employee values

If the employees’ values are ignored, the employees will be de-motivated. This occurs when the company is not able to accept their employees and cherish their work probably in a bid to frustrate them and compels them to quit hence increasing rates of unemployment.

Effects of unemployment to the economy

Unemployment affects the economy negatively. This is because the human capital is the key pillar to an economic growth. The production in various sectors of the economy is attributed to the employees. Once there is a reduction of employees, the output also goes down. An increase in unemployment means that the demand of goods also is very low. For an economy to nurture, there must be an increase in demand for goods which increases the produces output. This, in turn, will have positive effects since the wage rates will be increased.

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However, it is now the opposite, during unemployment, the companies will have low sales of their production, and since they cannot decrease the wage rates, many more of the employees will lose their jobs (Sowell, 2011). The companies will also produce less amounts of output due to reduced demand of the products. The economy will suffer a lot due to this since there will be no money to even import goods. The countries prices of goods will go down hence making them cheaper. This result in an imbalance of trade since the exports will be more than the imports. There is a financial cost to the government due to unemployment. When there is an increase number of people who are unemployed, the government will have to pay them some benefits to enable them sustain themselves. This will continue until they secure a job. If it takes long to get a job, the more the financial cost to the government. This will increase the cost to the government besides the loss of income from the decreased production.

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The affected people will decrease their spending. Instead, they will save more hence affecting the economy negatively. This aspect of an employed is coupled with the employed behaviour towards taxes and spending (Blom & Hobbs, 2008). The employed under this situation will be heavily taxed in order to meet or fund the government operations. This will entice them to reduce the spending and save more since they will be insecure in their jobs. This affects the economy negatively.


Unemployment does not only have economic impacts, it also has various social effects on an individual affected. Most nations across the globe are trying to look for solutions to curb the high rates of employment. They are addressing the causes of unemployment and looking for various means through which they can create more jobs for the ever increasing population. Some of the solutions that are sought include the creation of a healthy economic growth rate in a country. A 2-3% economic growth rate is sufficient to create enough jobs required to prevent unemployment rates from increasing. Increasing rates of unemployment implies that the economy is weak and is unable to create enough new jobs. Monetary policy is the first solution that is used to address the issue of unemployment. Expansive economic strategy is strong, fast and efficient (Lal & Wolf, 1986). Low interest rates that the government give enables families a chance to borrow at a cheaper rate so as to purchase their necessities. This heightens enough demand to stabilize the economy. Low interest rates also allow businesses to borrow enough capital to be able to employ new recruits.

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The use of fiscal policy works, at some points, when monetary policy fails. This policy implies that the government should either reduce taxes or heighten its spending rates to boost its economy. To get fiscal policy in track requires the agreement between the president and other major stakeholders in government. This policy is much more effective when put into operation than the monetary policy. Use of fiscal policy gives consumers more money to pay out hence increasing their demands. There are various cost effective solutions to unemployment rates in the world. Some of these are creation of employment opportunities that take up mass population together with using the available finances to fund a country’s education. Education given should be one that equips individuals with the necessary skills and expertise to be able to create jobs or become self employed.

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