Effect of unemployment to Economy

Effect of unemployment to Economy

Unemployment in any country affects significantly on the economy. Persistent high unemployment usually creates a high cost for the people as well as the economy as a whole. Often, some of these effects on the economy are hard to measure, but the extent is evident. One of the most known is the loss of income. The majority of unemployed experienced a decline in their living standards, which leads to less spending power (Schmieder, Wachter & Bender, 2016). When less spending becomes evident, it forces the government to engage in borrowing activities to settle some debts owed by those who are unemployed. This affects the economy of the country since it operates on terms due to reduced income, which reduces cash inflow into the country’s economy.

Consequently, unemployment causes multiplier effects in the country’s economy. Due to closure of several manufacturing companies’ causes’ multiplier effect on both the country’s and regional economy since it causes a drop in demand for essential local services causing downward pressure on the economy of the country.  In most cases, people are unable to meet their daily needs and find it unnecessary to seek government services, which relies heavily on consumers to run some of its projects. This affects the economy of the country due to a lack of circulation of money as a result of a lack of demand for services and goods.

Effects of unemployment to the society

One of the most evident effects of unemployment on society increases crime rates. With unemployment, especially among youth, means there is no enough money in circulation to meet their daily lives. These affect their well being, forcing some of them to engage in criminal activities for them to meet the needs in their lives. In other words, unemployed people have less money at their disposal to help them meet the daily expenditure, affecting even business people who entirely depend on them. High crime rates in society affect further progress both for the business and society as a whole.

Secondly, the effect of unemployment causes the creation of different classes in society. In this case, the rich and the poor become more evident as the gap between the two widens. The supply of money, in this case, is limited to a few individuals increasing the rate of poverty in the society whereby people struggle to provide for their families, especially when it comes to health care. With increased poverty in society, those who are married are likely to get divorced, affecting the wellbeing of society (Cairo &Cajner, 2017). In other words, unemployment makes people prone to the health-related problem due to lack of medication as a result of poverty

Effects of unemployment mental well being

Unemployment and mental illness are closely related, and there exists a strong relationship between the two. Unemployment leads to the negative perception among an individual, which manifests into melancholy and inability to solve monetary demands. This affects the mental health of the person, which leads to mental disorders as a result of poor mental health (Schmillen &Umkehrer, 2017). Individuals in this bracket have always pushed the demands in life, which requires financial capital, forcing them to develop self-denial in society. There are always under given pressure which overworks on their brain, affecting the overall mental health.

Consequently, unemployment among people causes mental stress and depression, which leads to stroke as a result of mental illness. Many people who are unable to secure jobs for over a long period engage themselves in alcoholism leading to mental health problems. This kind of behavior leads to depression, which later develops mental disorders such as anemia. Several kinds of research have shown the existence of a bilateral connection between unemployment among people and their mental health, which usually becomes more apparent as the time ones stay out of employment increases (Landais, 2015). Individuals in this bracket feel to be out place in society, and the majority regrets why this has to happen to them, forcing their brain to under stress and depression.

Types of unemployment

When it comes to unemployment, there is exist three significant types; structural, frictional, and cyclic unemployment.  Structural unemployment exists especially when given shift in the economy, which creates disequilibrium between skilled workers and the needed skills by suitable employers (Şahin, Song, Topa & Violante, 2014).  This is common, especially when the company’s ventures into the use of technology, which in turn forces workers first to get equipped with technological knowledge. This creates unemployment as those with skills are left out since they do not meet the new demands of the labor market.

On the other hand, frictional unemployment occurs, especially when employees leave old jobs when they are yet to find new jobs; this can be an act of voluntary or family circumstances that needs them to move, and some may be a result of having saved enough money. Similarly, it may be a result of fresh graduates looking for jobs when their parents are also eagerly looking for the same job. These create unemployment in any setup.

Lastly, cyclic unemployment is caused by the contraction of the business cycle, especially when demand for goods falls drastically that forces the company or business entity to lay off some of its workers. Unlike the first two types of unemployment, cyclic tends to create more unemployment.

Solution to unemployment

The most effective solution to unemployment is regulating monetary policies by the Federal Reserve.  This is the most powerful and efficient way of putting the economy back on track (Landais, 2015). Lowering interest on given commodities stimulates demand among the consumers, which allows business people to borrow and expand their business, creating more job opportunities.

Similarly, fiscal policy is another essential tool that helps monetary policy bringing back the economy back on the track. The government has to cut tax or increase its spending to stimulate the growth of the economy (Landais, 2015). This will, in turn, stimulates foreign investors, which will create job opportunities addressing unemployment cases.