The Unemployment Rate and Its Effect on the Economy
Unemployment is one of the negative economic indicators. Although economists and other scholars agree that there is a definite natural level of unemployment that cannot be obliterated, higher unemployment rates within a given nation inflict substantial costs on an individual, the society and the nation. Furthermore, unemployment entails dead loss assortment, meaning that there are no counterbalancing achievements to the expenditures that an individual need to endure. Nevertheless, depending on how it is quantified, the unemployment frequency is open to exploration. It is important to learn how to find the real rate. According to economists, unemployment is a delaying pointer of the economic development. This is because an economy ordinarily progresses before the unemployment proportion begins to upsurge. Conversely, unemployment causes a variety of negative outcomes across the economy (Nichols et al. 1).
The two main glitches emanating from unemployment, particularly the unemployment of labor, are individual adversities and lost production. Unemployed individuals suffer personal adversities as a result of lack of income. The larger society is also hurt from unemployment as a consequence of lack of production. Furthermore, unemployed individuals contribute less to the economy since they tend to spend less (Nichols et al. 1). They do not contributeto paying tax due to lack of income. Subsequently, the government gets minimal income to fund public services and resort to borrowing money due to low returns and increased expenditure. An increase in unemployment rates also influences other sectors of the economy, for instance,the value of health services and living standards. This influences the society in overall. In an economy characterized by high rates of unemployment, the precious time lost by the as a consequence of joblessness is unrecoverable. Below are some of the detailed effects of unemployment to the economy.
The Costs to an Individual
The cost of unemployment to a person is severe. When an individual loses the employment status, there is an instantbearing to his/her standard of living. For instance, before the Great Recession in the United States, the average savings percentage among the population had been decreasing towards zero and at times below. Even for persons entitled to unemployment reimbursements and other forms of government aid, for instance, food assistance, the aids only substitute a part of their steady revenue. This implies that many of these individuals will be consuming a lesser than usual amount. The economic outcomes for the unemployed persons can extend beyond limited consumption. Several unemployed persons will have no option but turn to retirement reserves in a squeeze, and therefore, drain all the savings, which has long-term consequences.
Continued unemployment can also lead to loss of abilities, fundamentally depriving the economy of a given nation or the society’s valuable talents. Similarly, the experience of unemployment can change the manner in which employees strategize for their forthcoming days. Furthermore, extended unemployment results in larger uncertainty and doubt about the worth of schooling and training, and therefore, result in numerous employees’reluctance to capitalize on education and training, which is a prerequisite for various occupations (Irons). In the same way, lack of income as an outcome of unemployment can put pressure on families to be unable to provide education to their children, and thus, depriving the economy’s future skills and the expertise to enhance economic growth and development.
Unemployment also results in additional costs to the affected persons. This is because protracted unemployment rates affect the psychological well-being of persons, thereby deteriorating the physical health and shortening lifespans (Irons). For instance, an unemployed person will end up having a lot of stress, which leads to other issues like lack of appetite, which affect the physical well-being. This, at the end, can result in other serious health implications to the person and his/her loved ones, thereby reducing life spans and working abilities.
Impacts to the Society
The social impacts of unemployment are hard to estimate but are serious. When the rate of unemployment becomes a persistent problem in the society, there are frequently amplified calls for protectionism and other hard constraints on immigration. The effects of protectionism can be adverse, for instance, damaging the retaliatory actions among nations. In addition, reduced trade affects the economic well-being of all trading partners, which can be attributed to lack of employment opportunities.
Other social consequences of unemployment comprise of the manner in which persons relate to each other. According to research, it is apparent that during times of high unemployment, there are often cases of less volunteerism and advanced crimes (Nilsson and Agel 1). Raised crime is as a result of absence of a wage-paying occupation that individuals may turn to thereby taking part in crime activities to meet their economic wants or aggravate boredom. In addition, the volunteerism desire weakening could possibly be as a consequence of damaging psychological effects of being unemployed or a bitter indication to those who are not employed.
Effects to the Nation
The economic implications of unemployment are undoubtedly more apparent when observed through a national outlook. Unemployment results to higher expenditures from the state to the central governments in form of unemployment reimbursements for instance, food aid, and Medical support. Simultaneously, as the different forms of governments are incurring welfare expenditures on the unemployed populations, the same governments no longer collect income tax as before, putting pressure on them to borrow money. This action transfers the costs and effects of unemployment to the future generations, thus, spreading the economic implications. The governments may also resolve to minimize other national or state expenditures, which could aggravate the negative economic condition.
Unemployment is also a precarious situation for many nations. For instance, in the U.S. economy, more than 70% of what the U.S. economy produces is channeled to private consumption and unemployed population (Elwell 10). What is worse is that even the people receiving government sustenance cannot spend the way they used to do previously. The production gap that is left by the unemployed persons also leaves huge deficit in the economy, hereby decreasing the GDP and reducing the nation’s ability to effectively allocate its resources.This process causes a great harm to the economy.
Unemployment also causes many organizations to incur an additional cost in terms of tax. This is because unemployment reimbursements are bankrolled fundamentally by levies measured on companies. When the rate of unemployment is high, nations will regularly seek to refill their treasuries by increasing their taxation on organizations. This move is aimed at spreading the costs to companies. The organizations, on the other hand, also face the problem of less demand for their productsand experience high costs in retaining or hiring more employees.
In as much as many nations worry about the outcomes of inflation, it is apparent that unemployment is equally a serious concern. Aside from the serious societal turbulenceas a result of unemployment, a high unemployment rate can result in self-perpetuating damaging effects on companies and the economic well-being of a nation. In the same manner, theprolonged high rates of unemployment can also have arestrained and long lasting effects to a nation. The costs of high rates of unemployment extend to the amassed amounts offered out as unemployment insurance benefits.
Nichols, Austin, Josh Mitchell and Stephan Lindner. “Consequences of long-term unemployment.” Washington, DC: The Urban Institute (2013). Internet Source.
Irons, John. Economic scarring: The long-term impacts of the recession. Washington, DC: Economic Policy Institute, 2009. Internet Source.
Nilsson, Anna, and Jonas Agell. Crime, unemployment and labor market programs in turbulent times. Department of Economics, Stockholm Univ., 2003.Internet Source.
Elwell, Craig K. “Economic recovery: Sustaining US economic growth in a post-crisis economy.” Current Politics and Economics of the United States, Canada and Mexico 15.3 (2013): 369. Internet Source.