Impacts of unemployment and inflation on economic and social perspectives Essay

Impacts of unemployment and inflation on economic and social perspectives

Unemployment is the state whereby a person is willing to and searching for work but remains jobless at a specific time - Impacts of unemployment and inflation on economic and social perspectives Essay introduction. It is measured by unemployment rate which is done by taking the percentage of those who are in the labor force and are unemployed. Unemployment is considered to be mostly caused by inflation rate, business cycles and insufficient demand on products.

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Unemployment has negative impacts on both individuals and the country’s economy. For instance when individuals are unemployed, they are financially unable to satisfy their financial needs; in cases of being unable to pay for rent or mortgage forces individuals to become homeless. Individuals are also unable to meet their food requirements which lead to self- esteem loss, mental stress, illness and malnutrition to himself and also to his dependants in the society. According to a research conducted by Dr. M. Harvey Brenner in the year 1997, it showed that increase in unemployment by 10% led to increases in mortality by 1.2%, cardiovascular disease by 1.7%, cirrhosis cases by 1.3%, suicide cases by 1.7%, arrests by 0.4% and reported assaults by 0.8% while a research conducted by Christopher Ruhm in 2000 showed that health of individuals improved in recession periods.

Due to unemployment, individuals are unable to meet their social responsibilities due to deficiency of funds which may force the persons to go for jobs which are below their skills thus leading to cause of underemployment. High unemployment rates also lead to oligopsony power for employers whereby individuals are forced to compete for the job opportunities which are scarce.

On the economic point of view, unemployment is known to lead to increased government a transfer payment which is done in form of food and welfare decreasing the spending which could be on economic production further leading to a decrease in GDP; this is because people are in fear of staying jobless which stimulates psychological anxiety. When there is presence of high unemployment levels in the economy, the resources, that is, human resources are not fully utilized due to the fact that the economy is working under its (PPF) production possibility frontier; this implies that there is a negative relationship between unemployment and economic efficiency. Reduction in the economic efficiency is also caused by people operating below their skill levels.

When the unemployment period is prolonged, skilled people are prone to loosing their skills hence loss in human capital. High unemployment rate may also lead to protectionism and xenophobia since workers have the fear that foreigners are filling their job opportunities; the government may further be forced to impose immigration obstacles, legal barriers beside foreigners seeking for jobs and trade barriers beside foreign competitors.

Inflation is the rise in general price levels which is mostly caused by increase in money supply and has adverse effects on both individuals and the economy of a country. Inflation is known to negatively affect the economic performance of a country by disrupting the consumption and investment decisions due to the investors’ uncertainty about the future inflation course. It also leads to relocation of riches to debtors from their creditors in the sense that what the debtors are to pay has reduced in value than what it was before they were billed. The investors have to take risk in investing since they have to depend on guesses which ends up with some as losers and others winners and eventually affects the level of investment in the country since some are forced to quit investing. Investment level in the economy also falls due to the fear investors has on high inflation investments where the relative prices are very unpredictable.

Inflation erodes the faith the public has on its political leaders

Inflation when viewed on the individual perspective, it is known to reduce living standards of people and even rendering it difficult for low and moderate income earners to meet their financial obligations; this is mostly because as the general prices go up, the incomes of individuals remain fixed. This effect is mostly felt by people who have retired because they depend on investments and pensions which are not increasing. Inflation has the effect of eroding saving’s real value as time goes by. Individual income taxes are interfered with and eventually may affect decisions like that of housing income especially where a person has his own housing which is deducted mortgage interest since the interest goes up; this forces individuals use extra finances on housing than it would be before.  Inflation has also shown the sign of changing people’s behavior of saving to consumption decisions. Inflation causes increase in unemployment levels because it makes it difficult for employers to maintain all their employers in the work place.

Since inflation leads to unemployment, it also leads to the further effects of unemployment and therefore needs to be kept at low rates because it is not advised to be at zero for it is expensive at zero rates than the benefits got. Unemployment and inflation have negative effects on the economy and individuals and therefore need to be controlled to reduce their effects.

Work cited

Baumol William J., Blinder Alan S., Economics: Principles and Policy, Natorp Blvd, Thomson/South-Western publishers, 2005


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