Unemployment and the Economy

The employment rate is a major indicator as to how the economy is doing. In a economic recession or depression, people fight hard for almost any job and settle for wages and salaries just so that they can be gainfully employed. Also, since consumers have lower confidence in the strength of the economy and less to spend, demand for products and services drops, and more and more people lose their jobs. In addition, businesses often downsize their operations or close down altogether due to the shrinking demand for products and services. This, of course, furthers the weakening economy's downward trend.

On the flip side, a good, booming economy gives people the freedom to pick and choose among positions based on location, salary, motivation, interest, and benefits. In turn, employers have to pay more to attract the best employees possible, which they are able to do because the employers and their businesses are selling more products and services to meet the demand. This puts more money into the economy, necessitating the hiring of more workers and the expansion and creation of new businesses to meet the even higher demand for products and services.

Can there be a downside to high employment rates? Believe it or not, there can be a negative effect on the economy as a whole when unemployment is extremely low. When there is a very low unemployment rate, consumers as a whole have more disposable income and they want to purchase more products and services. That's good because purchasing power and demand promotes business growth, but what happens is that demand exceeds availability and allows businesses to charge higher prices. As prices rise, the purchasing power of money goes down--inflation occurs. The same amount of money now buys less than it used to.

In addition, businesses have to pay more for goods as well as services, including employees. Employers often must offer top-dollar pay, benefits, perks and even incentives like signing bonuses in fields that are particularly competitive. This holds true for executive-type positions as well as fast-food restaurant workers. Again, that vicious cycle is at work here. When businesses have to pay their employees more, you have to pay more for the products and services they provide. You may be earning more, but the buying power of your money goes down.