Causes and Effects of Unemployment

Sherman (2013) and Sanchez, Serrani, & Sperotti (2012) systemized the complex nature of causes and effects of unemployment. This stems from an individual, family, institution, the nation, and the global context of the economy. The absolute definition of unemployment is viewed in terms of someone not being on job. This definition is highly contested by ideas of disguised unemployment, underemployment, and time frame of being out of job and the terms and conditions of the job. Unemployment has not only been studied for scholarly, empirical purpose but to find solution to such a real and pragmatic social and economic problem (Congressional Budget Office, 2012; Sanchez, Serrani, & Sperotti, 2012). The following paper will study causes and the effects of unemployment. The paper will look at the economic situation, mismatch of school training and labor market demand, the affective domain of the prospective employees, and the effect of prolonged unemployment as the causes of unemployment. Effects of unemployment can be experienced at an individual level or at the economic level.

The major cause of unemployment is national and the global economic situations. These are the economic situations that affect interest rates, taxes, grants, business operations, purchasing power, investments, trade, and demand for goods and services. At the global level, the case in hand is the 2007- 2008 financial crisis. This mainly began in the USA but due to global economic connectivity it spilt over to Europe and other parts of the world. The financial crisis caused budget deficits and countries had to adjust the deficit by employing austerity measures. One of the mechanisms used in government spending cuts involved reducing the number of workers to cut on cost of wages. The financial crisis continued causing effects two to three years after 2008 with rates of unemployment soaring high in US and Europe. Increased taxes and changes in fiscal and monetary policy affects business environment. The traders who would wish to engage in the business that meets the local needs find it hard to operate because of high taxes and increased bureaucracy and regulation. In effect, the businesses that are done by both trained and unskilled, professional and non-professionals dwindle causing high unemployment. The business grants are limited and the cost of borrowing is high because of high taxes and interest rates. Therefore, an ordinary person within the economy cannot engage in self employment activity. The uncertainty in volatile international markets is high and therefore, the potential investors who would contribute to creation of jobs by investing in businesses buck of. The national economic policies and effects from the global business environment have a strong connectivity to the labor market. Physical and monetary policies, the availability of finances, imports and exports, interest rates, grants, incentives, and the investment opportunities form an integrated environment that directly affects employment.  They affect every economic niche and their interdependence nature causes massive effect on employment situation (Sherman, 2013, Congressional Budget Office, 2012; Sanchez, Serrani, & Sperotti, 2012; Stiglitz, 2009).

The second leading cause of unemployment is the mismatch between job training and labor market. This is a situation where the skills and the professional training in school do not match what the market demands. The labor market has experienced tremendous dynamics in the recent years. Markets that are driven by technology are prone to changes in operations and the machine complexity. The training in the education system may not change at the same rate as the market. As a result, the school leavers and the graduates will not be able to work in an industrial system that is technically different from what they trained. Other factors that determine the market dynamics include changes in the consumer preferences and changes in the global economy. Companies must use the in-house training to build capacity of the existing staff. On the other hand, universities inculcate the projected need of the markets in the curriculum of the continuing students. But given that the market focuses on the major courses of the training, the additional studies do not make significant impact on their absorption into the labor market. The corporate community must engage learning institutions in the design of a curriculum and programs that are directly needed in the labor market. This will lead to direct absorption of the graduates into the markets that facilitated in the design of the learnt skills. Training in school and colleges ought to be in tandem with the national education policy and the general job market trends (Congressional Budget Office, 2012; Sanchez, Serrani, & Sperotti, 2012).

Other causes of unemployment are the personal affective domains. These are the personal attitudes towards a given job, personal preferences, and lack of job and employment values. Some people take some jobs as not to their class and standard. Therefore, they are selective and pursue a specific job of their interest. This causes them to be part of the unemployed. Lack of human values and virtues are some of the affective domains that lock people out job. They cannot be employed because of reputation, behaviors such as corruption and dishonesty. People who have not been employed for a long time may further suffer unemployment. Employers look at work experience before they employ the person. They cast doubts on the reasons the person was not employed for many years. Therefore, the person remains unemployed (Congressional Budget Office, 2012; Sanchez, Serrani, & Sperotti, 2012).

According to Sherman (2013), Congressional Budget Office (2012) Sanchez, Serrani, and Sperotti (2012) Stiglitz (2009) the effects of unemployment on the economy include reduced trade volume, changes in the economic policies, a slow economic growth, and economic recovery. The unemployed do not participate in economic activities therefore they do not contribute to GDP. The goods and services that they would generate for exports and local trade are factored out of the economic system (Siyal, Ahmed, Aziz, & Zaman, 2013; Congressional Budget Office, 2012; Sanchez, Serrani, & Sperotti, 2012). Unemployment also causes effect on the fiscal and monetary policy. Congressional Budget Office (2012) systemized some of the fiscal policies that would need adjustment. The economic policies that would increase disposable income support of business growth and increase of aid to the government for infrastructural development. The effects in terms of the policy should be understood in terms of the econometric models. The models would determine the details of an individual’s output and employment. The impact of the policies would be measured from minor increases in the employment to the Full-time- equivalent employment. Stiglitz (2009) observed that economic stimulus program was measure taken to improve the economic situation of the most affected sectors of the economy. This would not only help the economic recovery of key sectors but individuals would benefit through employment opportunities. It is also noted that soaring unemployment has indirect effect on the economy through political unrest. Governments and institutions are continuously taking measures that guarantee a robust economic model for employment (Stiglitz, 2009, Siyal et al., 2013; Congressional Budget Office, 2012; Sanchez, Serrani, & Sperotti, 2012).

Unemployment affects an individual in a number of ways. The unemployed are not able to meet the day to day financial needs such as provision of meals, transport, schooling, housing, and other family needs. This has lead to increased rates of poverty and overdependence on the unemployed benefits. The effects are more to people in countries without unemployment benefits and employment insurance. The unemployed cannot save. This means that their future prospects of investment and personal development is bleak. The unemployed cannot service their loans and they cannot borrow money because some lenders would demand loan insurance. They suffer limited options of financial cushioning and economic stimulation. They are not able to do business or upgrade their skills through training. Unemployment stigma, lack of savings and inability to meet basic necessities causes psychosocial disorders. They may be affected by stress, depression and other forms of psychological problems. The unemployed stigma may cause an individual to feel unwanted in the fresh employment opportunities and have a reserved social life. Employers cast doubt on their reasons for being unemployed for a long time, a situation that leads to their inherent unemployment causing acute psychological conditions (Siyal et al., 2013; Congressional Budget Office, 2012; Sanchez, Serrani, & Sperotti, 2012).



Congressional Budget Office. (2012). Understanding and Responding to Persistently High Unemployment. Washington, DC: The congress of the United States.

Sanchez, A., Serrani, L., & Sperotti, F. (2012). Youth Unemployment and Joblessness: Causes, Consequences, Responses. Newcastle: Cambridge Scholars publishing

Sherman, J. (2013). Surviving the Great Recession: Growing need and the Stigmatized Safety Net. Social Problems, 60(4), 409 -432.

Siyal, G., Ahmed, A., Aziz, A., & Zaman, K. (2013). The Long Run Effects Between Unemployment and Economic Growth in Selected SAARC Countries. The Economic Research Guardian, 3(2), 70 -85.

Stiglitz, E.J. (2009). The Current Economic Crisis and Lessons for Economic Theory. Eastern Economic Journal, 35(2), 281-296. doi:10.1057/eej.2009.24

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