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The Causes and Effects of Unemployment

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Employment is a complex economical process. When workers cannot find jobs and the unemployment rate is high, it is a signal of an economy that is performing poorly. Yet when employment levels get too much, it can show that the country has too much industry and investment relative to its workforce, which can cause problems of its own. Below, we give a guide to unemployment including its causes and effects.

Causes of Unemployment

There are a large number of reasons unemployment may rise. At its core, a lack of jobs in the labor market means workers cannot find employment. A lack of prospects may come from a poor economy lacking in business and production, depressions and recessions or the emergence of new technology the human workforce.

Unemployment is broken down into frictional, cyclical, and structural types. Frictional is the least dangerous and occurs naturally as workers move to new positions and fields. Cyclical unemployment is a loss of work during the rotation of business cycles. Structural is arguably the most damaging. It happens when large changes occur within an industry that marginalizes workers. This could happen if technology replaces them or jobs get moved to another area or country.

It’s useful for investors and anyone thinking of starting businesses in a particular country to know the current rates of unemployment and future predictions. These will be done through reports published by the country’s government. The economic calendar is a way of checking if and when it will be published. You will also find they provide other key events which could impact the prospects of a country, such as retail sales and industrial production figures.

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Results of Unemployment

The results of unemployment are wide-ranging, starting at an individual level and going on to create a butterfly effect felt by the rest of the country and society. At the ground level, it reduces the disposable income of a person. This means they have little to spend on anything other than essentials, damaging the economy. If people are then unable to meet their basic needs, high levels of poverty will begin. 

A functioning government should do everything it can to reduce unemployment. With higher levels, fewer people are paying into the tax system, so budgets begin to shrink. This may come at a time when more needs to be spent on social programs and benefits, as citizens start to fall into poverty. When workers are not contributing to the economy, the output could get lost.

All of this damages the view of a country for potential investors and foreign bodies and can impact the value of its currency. Research has shown that a 1% decrease in employment levels can create a 2% drop in GDP. 

There are other ways countries try to relieve unemployment, such as keeping people in long-term education. It does not pay for a country to have a high level of unemployment, so they will do everything that can to alleviate the situation.

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