Unemployment is defined as people who are ‘able, available and willing to work’ yet cannot find work. The term throughout history has been feared by so many households- however, through the influences of unprecedented events such as the COVID-19 pandemic and rising costs of living, unemployment has drawn itself a very large seat at the table of the global economy- demanding respect and attention through the socio-economic problems such as poverty and low GDP it has exacerbated. It is a world-wide challenge, but the true question is, how brutal is the damage caused by unemployment upon our economy?
History has shown unemployment to be lowered, but never permanently eradicated - it always comes back. And it’s engravement can be seen through its timeline:
1933: Unemployment in the US hits 25% during the Great Depression
1970s: Unemployment rises sharply due to oil shocks
1979: Conservative party voted to power in the UK campaigning ‘labour isn’t working’
2008: The financial crisis and recession that led to unemployment rising to 10%
2020: Coronavirus pandemic- unemployment reaching 14.8%
The 21st century has become technologically advanced, to an extent where it has replaced the jobs of workers, and structural unemployment has surged, for instance the interactive Hi-Tech self-check tills on shop floors, or the automation of manufacturing. There are simply fewer jobs available. Many businesses also choose to outsource, to lower their costs of production or simply transfer sectors and industries abroad altogether, resulting in many workers being displaced. When a country is going through an economic recession, its GDP falls, and its position on the business cycle is low - subsequently rising cyclical unemployment. Recently, pay disputes in several sectors of the economy have arisen, which poses an imminent threat to employability. For instance, Royal Mail and TFL have planned, and are continuing to plan action against their low wages and large masses of automation. As a result, labour turnover increases, which stimulates a decline in productivity; redundancy is speculated to rise, so with the lack of mobility, the economy suffers and unemployment is accentuated further.
Prolonged unemployment can lead to an erosion of skills within the labour force thus reducing the productivity of an economy; ultimately, the country is not maximising its resources of labour, as it is operating within its production possibility frontier, which results in a downturn in economic activity - the UK took a hit of 9.3% decline in its GDP in 2020 due to the pandemic, which was ‘the largest hit to economic output, since the WWI recession’ (UK Gov). Clearly unemployment has a negative multiplier effect, for when people do not have the stability of a job, their consumption, savings, and disposable income all fall; consumer confidence contributes to nearly 60% of aggregate demand, thus unemployment wins the war against the economy by losing the faith of people’s purchasing power.
“Globalisation is a fact of life. But I believe we have underestimated its fragility.” - Kofi Annan.
The rise in unemployment within the borders of a country, can have a global impact. During the COVID-19 pandemic, the ILO approximated in 2021, that 8.8% of global working hours were lost, which equates to 255 million full time jobs. The global effort to contain the virus resulted in businesses to suspend or shut down operations, causing the unemployment rate to spike to levels greater than the Great Recession. Globalisation is often seen as a good process, for it makes our world deeply integrated. Conversely, it can also lead to severe competition between companies that leads to closures, offshoring, and job losses.
(2021 World Bank - unemployed percentage)
Evidently, 2022 global rankings highlight South Africa to have the highest unemployment level at 34.63%. Unemployment causes individuals to struggle to meet financial obligations - their ability to maintain a minimum standard of living declines which deepens the road to poverty of the country. Through the absence of income and poor living conditions, many children and young adults in South Africa face an opportunity cost of educational openings - thus reducing the human capital of the country’s economy.
When employment declines individuals’ real income falls, so they pay less direct and indirect taxes (low tax revenue) to the government, whilst receiving more welfare benefits and transfer spending. Ultimately, unemployment increases the government’s budget deficit. Today, the UK government is struggling to finance economic development such as health care and education, due to its ever-increasing debt.
Aside, from financial problems, social unrest may also arise within a country as a result of unemployment. Due to the increase in spare time, crime rates surge along-side abusive behaviour and alcoholism. The financial hardships created causes stress and tensions, but above all, prolonged unemployment leads to an attrition of confidence towards the government. A circle of poverty and deprivation is created, and coupled with a reduction in consumption, there is less attraction of foreign direct investment.
The costs of unemployment can be grave and evidently last a long period of time. Yet, it can be tackled strategically. Growth means that there are more technological advancements, research, and development. Whilst some may argue that growth brings forward structural unemployment; others can see that labour is a derived demand, hence why more growth should stimulate more jobs and reduce the levels of unemployment. Employment is the heart of a country’s production, but truth be told that consumer and business confidence is everything - without it, employment would be idle.
Full employment is a fantasy because it is near impossible. Hence, one of the government’s main macroeconomic objectives is to lower unemployment. Yet, it is inevitable that in 2023, the UK economy will undergo a deep recession, due to the rising costs of living. The autumn statement involved a lot of tax rises and spending cuts- a negative combination to prevent unemployment from rising. Therefore, it is forecasted to see a heavy rise of unemployment next year- the Bank of England forecasts over the next two years the rate of unemployment to rise to 6.4% from the current 3.5%.
The battle against unemployment has been ongoing for several years, and it is forecast to be exacerbated in the forthcoming era.
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