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Unemployment refers to a microeconomic situation which affects individuals. When a family member becomes unemployed, the members feel it in the loss of income as well as a decreased living standard. Most average consumers in the macroeconomics realm fear unemployment more than other situations. Unemployment is caused by numerous factors such as fall of firms because of situations like recession, inflation and changing technology, also employee-related factors like job dissatisfaction, personal values and discrimination. No matter what the cause of unemployment is, the impact on both the individual and the economy is severe (Knight 17).
The effects take some time to incubate and they become evident very slowly. However, they ultimately leave deep marks that remain long after boom times have resumed. The effects of unemployment on the economy are numerous and may include financial costs, decreased spending power and recession. Thus the effects on economy are in three areas namely individual, society, and the government, which eventually affects all aspects of the economy.
Discussion of Effects
To begin with are the costs to the person, which are not difficult to imagine. When an individual loses her or his job, the standard of living of the person is affected immediately. Before the Great Recession in the United States, the rate of average savings had been pushed down towards zero and at times went below. This has resulted to risking the average person to severe financial problems in absence of a paying job. Despite the benefits for the unemployment, the eligible individuals cannot get enough from the benefits because they replace about 50% or less of these individuals’ normal income. This implies that these individuals are consuming less than their usual consumption. The economic impacts can exceed less consumption. Most individuals will shift to retirement savings in a pinch and consuming the savings possess long-standing ramifications (Layard, Layard, Nickel & Jackman 199).
Lengthened unemployment can cause erosion of skills thereby robbing the economy of otherwise significant talents. Similarly, the unemployment experience can interfere with the future work plan of the affected. On the other hand, extended unemployment can cause greater pessimism as well as skepticism concerning the value of training and education and result into less will for the employees to invest in the long training years required by certain jobs. Similarly, income absence resulting from unemployment can compel families to deny learning chances to their children as well as depriving the economy of those upcoming skills. Additionally unemployment can lead to mental problems, deteriorate their physical health as well as shorten lifespan. These are destructive to the society (Fineman 157).
There are other costs to the society which are hard to calculate despite being real. There are commonly increased demands for protectionism as well as serious restrictions on immigration when unemployment turns to be a pervasive issue. Protectionism can lead to both harmful eye-for-an-eye revenge amid nations and decrease in trade, which destruct the economic welfare of all trading partners.
Further, there are costs that encompass the way individuals interact with one another. Research has revealed that increased unemployment times commonly correspond with higher crime and less volunteerism. Increase in crime makes sense since lack of a wage-paying employment individuals may resort to crime to satisfy their economic demands or just to get rid of boredom. There exists no obvious explanation for volunteerism decline although could probably be connected to the negative psychological effects of joblessness or probably even resentment at unemployed people.
The other costs are to the nation, which gives the obvious outlook to the costs of unemployment on the economy. Unemployment increases payments from federal and state governments for the unemployment benefits (which went beyond $320 billion by the end of 2010), Medicaid and food assistance. Those governments are at the same time no longer collecting similar income tax levels like before thereby forcing the government to borrow cash or reduce on other expenditures. Borrowing money defers the costs as well as the effects of unemployment into the future. On the other hand, cutting on spending would probably aggravate the bad economic circumstances (Stone & McCraw 180).
Unemployment is unfavorable for the United States’ economy. More than 70% of what is produced by the United States’ economy goes to unemployed workers and personal consumption. Individuals receiving support from the government are not in a position to spend at prior levels. These employees’ production leaves an economy that decreases the GDP as well as moving the nation away from the efficient allotment of its resources. This is not a serious problem to individuals subscribing to the theory of Jean-Baptiste Say, which claims that “products are paid for by products” (Stone & McCraw 181).
Notably, firms also pay a price for increased unemployment. Taxes assessed on businesses are used largely to finance unemployment benefits. When unemployment is elevated, states will normally look to restock their coffers through increasing their taxation on firms. This is counter-intuitively discouraging firms from recruiting more employees. Firms face less demand for their commodities as well as suffering from the increase cost of retaining employees.
The spending power of the unemployed individual as well as his or her family reduces rapidly and the person opts to save than spend money that as a result impacts the economy severely. On the other hand, the employed spending power is also reduced. This is because of elevated taxes as well as the insecurity concerning their own job. These individuals out of fear may begin spending less thereby affecting negatively the economy and the society at large (Stone & McCraw 182).
Unemployment is equally severe to inflation and the government should fret similarly to the two matters. Besides the social unrest as well as disgruntlement resulting from unemployment in the electorate, elevated unemployment can lead to self-perpetuating negative results on businesses together with the economic health of the nation. Worse still, certain worse effects of unemployment are subtle and long-standing clients and business confidence is central to economic healing and employees must feel confident to invest in developing the skills, which are required in the future. Unemployment costs exceed the accumulated sums given out as unemployment insurance benefits (Watts & Mitchell 10).
Universally, unemployment is identified as a negative thing because of its impacts on the economy and the society at large. There exist many causes of unemployment ranging from personal to economy-related ones. Irrespective of the cause, unemployment has adverse effects on the economy as found in the research. In summary, the unemployed loss their source of earnings, they also find it hard obtaining another job in the future, psychological as well as health issues related with unemployment, elevated government borrowing, decreased the GDP of the affected nation and increased social problems, which eventually become economic problems.
Thus companies together with the government should work hard to ensure all the factors of unemployment are addressed. Measures and policies should be formulated to ensure the rate of unemployment is reduced or diminishes completely, although is hard to achieve. However, the concerned parties should not despair because of the challenges that hinder decrease of unemployment but rather should put more effort to make the situation better. This will save both the unemployed and the economy much stress. The nation will also grow in terms of enhancing the GDP. Similarly, individuals will not become a burden to the employed people as well as the companies thereby creating harmony for all.