Unemployment affects the economy in more than one way. This is because various facets of the economy are interconnected and an effect on one will have a spiraling impact on the others. No country wants to have high unemployment rates since this scenario only leads to more cases of unemployment because the number of individuals jostling for a single employment opportunity are numerous which makes chances of getting the job very slim for all interested candidates.
One way unemployment affects the economy is associated with money flow. A steady cash flow is essential for every economy that wants to thrive-both inwards and outwards. Failure to achieve this leads to sluggish economic growth which in turn makes it harder to make a turnaround in future.
Again, unemployment affects the economy when utilization of raw materials and machinery required for output is not optimized. The result of this is decreased consumer expenditure which in turn leads to deflation brought about by minimal demand and supply of products and services.
If a country is faced with high unemployment rates, then it follows that most people will accumulate more debt than necessary so that they are able to meet their financial obligations such as mortgages, auto loans and other bills. Repaying these debts will of course get harder with no jobs to go around for everyone. In this case, the government will be forced to increase taxes in order to run properly not to mention catering to needs such as social welfare and other vital obligations. In this way, unemployment affects the economy immensely.
A country that has a high unemployment rate will also mean that other sectors of the economy are compromised since funds meant for development are directed at supporting the jobless masses. Economic slowdown will be experienced as a result.
A lower return on investment (ROI) is the product of a government with limited spending capability and less finances to invest. Things will be worse should the currency lose value since less investors will be willing to invest in such an environment. This is because people's spending power is key to a thriving business environment.
A person with no steady source of income has limited spending capability. This means that the little one has will be stretched for the longest possible period cutting back on unnecessary purchases. This is the other major way unemployment affects the economy since the retail sector will find it hard to thrive in such an environment. Less demand for goods and services means less sales volumes for companies which no doubt can't afford to make losses. In such cases, various austerity measures will be put in place and key among them, laying off the staff. This in turn will lead to higher unemployment levels.
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