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The Causes And Impacts Of Unemployment Economics Essay

The economic welfare of any country depends on the rate of the economic growth. There are several determinants or the factors for the economic development of a country like industrialization, agriculture, population, employment etc., one of the major indicator for the economic growth is employment rate, as it has an adverse impact on the whole economy. Whenever there is high degree of employment rate the production improves thereby increasing the standard of living (Anderson, 2006).

High unemployment rate in a country leads to social and economic problems in the community as a whole. Economic problems result in less production of goods and services, less distribution of income, loss of tax revenues, fall in GDP rate etc. ( Social problems cause’s social ills and shows effect on individuals financially and psychologically. Individuals cannot meet their financial obligations on time and getting high stress which leads to problems like ill-health, premature death, suicides etc. (Clark, 2003)

The economists describe unemployment as a condition of jobless within an economy. Unemployment is lack of utilization of resources and it eats up the production of the economy. It can be concluded that unemployment is inversely related to productivity of the economy. The history of unemployment is directly related to history of industrialization. It leads to unwanted job losses and willing workers without job. It is worthwhile to mention here that not everyone who is out of work is seen as unemployed. A person with a large fortune not looking a job is not counted in the unemployed population in that he is not willing to work in the first place, though he’s officially out of work. As such unemployment refers to the inability for willing workers to find gainful employment. One of the major indicators of the economic health of the country is the degree of unemployment. The impact is of high unemployment is seen in the difficulty in finding mid level jobs. The fact is that minimum wage level jobs are adequate but not considered as gainful employment of the majority of the workforce (Anderson, 2006).

Moreover, the effects of unemployment are social, too, not just economic. Frequently, crime rates rise as people are unable to meet their needs through work. Divorce rates often rise because people cannot solve their financial problems. The rate of homelessness rises, as do the rates for mental and physical illness. Homes are foreclosed upon or abandoned, and neighbourhoods deteriorate as a result.  When there is high unemployment, people pay less in income taxes and also pay less in sales taxes because they purchase fewer goods and services.  As such unemployment is not a good thing for anyone in our society, and even the people who remain employed will suffer as a result ( The study will enable the governments to take initiatives to increase the productivity for overall development and reduction in unemployment. The study of unemployment will provide a comparative data between public and private sector. It also gives indication of under employment in private and public sectors. These factors become basis for the formulation of the monetary policies of the country for the future years.


Unemployment generally defined as the number of persons (It is the percentage of labor force depends on the population of the country) who are willing to work for the current wage rates in society but not employed currently. Unemployment reduces the long run growth potential of the economy. When the situation arises where there are more other resources for the production and no man power leads to wastage of economic resources and lost output of goods and services and this has a great impact on government expenditure directly (Clark, 2003).

High unemployment causes less consumption of goods and services and less tax payments results in higher government borrowing requirements. The impact of the unemployment is seen with the individuals and household curtailing the consumption drastically to meet financial obligation and factors like this have adverse impact on the whole economy. It also reduces the output of goods and services which could have produced by unemployed labor force. An economy is producing substantially below its potential if unemployment rate is extremely high, thus everybody in the society loses by consuming and enjoying less because less is produced for distribution (

Many economists (Anderson, 2006) have done research studies to alleviate this problem and to find solutions. In this study we will discuss about the causes for unemployment, challenges to government and individuals to alleviate this problem. This report gives you the overview of the social effects of unemployment and the challenges ahead for the situation.


There are several causes for unemployment and it depends on prevailing conditions of economy and also on individual’s perception. The following are some of the causes for unemployment:

Change in technology is one of the serious cause for unemployment. As the technology changes employers search for people with latest technical caliber. They look for better substitutes. Job cuts due to change in the technology brings unemployment problem in the society.

Recession is prime factor for unemployment in most of the countries. Because of the financial crisis in one country can affect the other countries economy due to globalization.

Changes in the global Markets are another important factor. Any country economy adversely affect when its exports are down the line due to changes in global markets, and increase in price. With this production suffers and companies unable to pay on time and this increases the rate of unemployment.

Job dissatisfaction by many employees is another cause, this happens when less attention given by the employers on the performance of employee. This leads to lack of interest and desire to work and unemployment becomes inevitable, as employees deliberately loose their jobs.

Employment discrimination based on the caste, religion, race etc., in the companies, an employee looses the ease to work in the organization.

Negative attitude by the employees towards the employers creates unhealthy environment in the organization. And this ultimately leads to unemployment (


Effect on Economy

Unemployment rate depends on the economy to economy. In developed countries like United Sates and Europe the unemployment rate considered to be low because many people are self employed people and working in agriculture. In countries where there are less self employed and more population with less resources causes unemployment (Anderson, 2006).

Unemployment affects the economy adversely as the productivity falls below the normal level. When there is high rate of unemployment in the country, government has to suffer extra borrowing burden due to decrease in the production and less consumption of goods and services by the people. Not only the unemployed people consume less its even employed has weak purchasing power due to fear about their loss of their jobs. Unemployed not working and not contributing for income generation of the economy, but also they claim benefits from the government and it is an additional cost for the economy as a whole (Baker, 2009).

Social Effects

Not only unemployment problem suffers the economy, even there are many social affects too. The following are some of the social affects of unemployment:

Loss of skills: when there is unemployment in the society, people loose their skills due to no usage and it causes human capital loss.

Mental illness: There will be loss of self confidence, frustration, negative attitudes towards common things when there is loss of income, and a person’s self-esteem gets hurt due to these mental illnesses.

Financial obstacles: Unemployment brings financial obstacles in the family. People cannot meet their financial obligations on time and it brings frustration among family members, brings tension at home and may leads to suicides .

Increase crime rate: When there is unemployment in the society crime rate increases. When people don’t have disposable income they can go to any extent like theft, robbery and also murders in order to survive their livelihood.

Political instability: Due to unemployment people lose trust on government and their administration and this may bring political instability.

Insecurity among existing employees: when the economy is facing unemployment problem it brings insecurity among the existing employees and their purchasing power decreases due to fear or insecurity on their jobs.

Poor standard of living: Unemployment causes poor standard of living as competition for jobs will increase and people accept for less salaries and their standard of living will decrease due to their low income.

Employment Gap: Unemployment brings employment gap in the companies for hiring a suitable person and for an individual who is out of job has to find another one in difficult situations. This brings the gap in income generation (;


Several policies have been made to reduce the unemployment problem in the economy. Government just needs to focus on execution of these policies and work out hard in alleviating this problem. Government can expand capital projects like new roads, constructions of new hospitals and major infrastructural projects which can become a platform in creation for more jobs in the economy. It increases income generation to the economy (Fritz, 2006).

Reduction in taxation can bring higher purchasing power to the consumers. It gives some relaxation to consumers in spending their disposable income. Government should take proper steps in investment decisions on huge projects like iron and steel, aviation etc., proper policies are to be made to boost up these projects thereby creating employment opportunities. Proper recruitment, training and development are to be needed by every company in order to increase the capabilities of employees, and to enhance their skills and shows great performance in up bringing of the organization. Government can take initiation in reducing the interest rates and it enhances the demand for credit and improves savings by the individuals. Necessary steps are to be taken by the government in increasing the productivity for the overall development of the country and reducing the unemployment problem in the economy (Fritz, 2006).


It is not only the responsibility of the government to take initiation in reducing the unemployment problem, even individuals has to take step to overcome this problem. Lot of adjustments are to be done by the individuals to come out of this situation. With out taking hasty decisions like suicide, frustration they can plan and do proper adjustments like debt adjustments, expend their liquid assets when it is required, cut down their expenditures and also encourage other family members to find jobs so that they can compensate in income generation (Fritz, 2006).

An individual has to increase their capabilities and participate in proper counseling and training sessions to improve their performance levels and enhance their skills. They have to think about self employment apart their job with the help of their family members. This also improves their standard of living (Fritz, 2006).


Unemployment is a serious issue for any economy. It creates negative affects to unemployed as they are jobless and suffer from worse prospects to find new job and those who are employed feel less secure to keep their jobs in future. However for overall development of economy, government and individuals has to take initiative steps in increasing the productivity and improving the standard of living.

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