Impact of the economy on the job market

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This research paper tries to shade more light on the impact of the economic growth or decline on the job market. Economic growth stimulates the job market through increased demand for goods and services. This will to a rise in production and thus increased demand for more workers. On the contrary, a slump stagnates the growth in the labor force resulting in a rise in unemployment which will eventually lead to decline in demand for goods and services hence reduced economic activity.

Economic growth and the labor market

Economic growth is the steady increase in the country's productive capacity. Economic growth comes with many effects on the job market both positive and negative. For an economy to grow, at least more than half the sectors in the economy must be growing. For a country to grow economically, its economic growth must be sustainable. Economic growth for a country stimulates all sectors for the economy. All the sectors in the economy employ factors of production (capital and labor). This means that, since the sectors are employing both capital and labor, the demand for the two inputs must increase leading to the growth of the two sectors. Therefore, economic growth leads to a growth in the labor sector. The growth in the labor sector on the other hand, raises the real wages for the public hence increased spending and demand for both goods and services. This will in turn act as a stimulus for economic growth / recovery. The lower the consumer spending, the slower the economic growth/ recovery (Rugaber, 2009).

A slump is a situation where the economy is contracting. A slump slows down the economy as most sectors in the economy have no incentive to continue producing. During a slump, there is a low demand for the labor leading to increasing unemployment. This in turn yields to a weak labor force with high unemployment rates and low wages which can't generate more demand for goods and services. This slows economic activities hence economic growth. The labor market primarily bears the effect of economic contraction. This can be exhibited by the rise in the unemployment levels and the contraction in the salaries (Partricio, 2002, p.5) with more workers getting more nervous about their job security. According to Partricio (2002) when an economy is contracting, it becomes unable to create more jobs creating serious doubts about its ability to recover and create permanent growth hence persistent growth in unemployment. Reduced rate of absorption which is found mainly in developed countries is mainly due to technological innovation which increases labor productivity and reduces the demand for labor.

From the recent events with the decline of the Wall Street, the world economy at large has been affected and the labor market at large has suffered a great deal.

On the contrary, economic growth also depends on the job market as a stimulus for its growth. A weaker job market means that the unemployment rate is high, real wages are low and therefore the purchasing power of the general public is low. With such a low demand power, the economy will lack the incentive to grow as the manufacturers will contract their output resulting in a decline on the whole economy.


Economic growth and the labor market are interdependent. Both positive and negative economic growths have drastic effects on the labor market as a whole. They can either increase or decrease the growth in the labor market. On the other hand, the labor market has the ability to stimulate or contract the economy through its spending power.


    Lewenza, K. (2010). "Rising employment number masks devastated job market: analysts hail recovery but deeper probing reveals more precarious situation for workers: the" Retrieved on February 8, 2010 from:

    Partricio, E. (2002). "The Chilean economy and the job market: The impact of the crisis in specific areas." Global policy network. Retrieved on February 8, 2010 from:

    Rugaber, S. (2009). "Weak job market likely to slow economic growth: San Francisco chronicle 2009." Retrieved on February 8, 2010 from: 21/business/17177208_1_indicators-claims-recovery