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The Rise And Effects Of Unemployment Economics Essay

In as much as the great recession is coming to an end, the rate of unemployment in the US is on the rise. Before the era of unemployment ends, it will probably transform the character and life course of many unemployed Americans. It will leave an unforgettable mark on the economy of the US, particularly for those in formal employment. It might even lead to the divorces in many communities. In the US, unemployment is already penetrating to the inner cities and this has caused despair like never before. In the end, unemployment will probably distort the character, culture, and politics of the American society in the future.

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Unemployment arises when able and willing individuals have no work to do. The intensity of unemployment is normally measured by the unemployment rate. The rate of unemployment refers to the number of civilian workers who are not employed. According to the Bureau of Labor Statistics, unemployment refers to the number of individuals, who have worked in the last one month, have no job at the moment, and are able and willing to work at the moment. Unemployment also includes individuals who have been laid off temporarily and are still waiting to be recalled to their jobs. However, it does not include individuals who have not have not been searching for jobs in the previous month.

The rate of unemployment is a crucial measure of joblessness and the growth rate of an economy. Nevertheless, it is considered by economists as a lagging indicator because it can only measure the effect or recession after it has began. In addition, the rate of unemployment can continue to rise despite an economy recovering. Therefore, unemployment rate only confirms what other indicators are already showing. (Steven and Sullivan 65)

The rise of unemployment in the United States

After two years of hardships, the recession is finally coming to an end in the US. However, things are not yet back to normal because unemployment is still on the rise. Looking at past trends, since the 1980s each recession has always reduced slowly that the previous one. In 2001, the US did not fully recover from the previous recession.

Throughout the decade the income of individuals has remained sluggish. By October last year the rate of unemployment had climbed to 10%, and most economists have predicted that this trend might continue till 2014. By the end of last year and for the first time the period of unemployment exceeded 6 months, since 1948. Currently, for every open vacancy there are six individuals ready and willing to work.

Nevertheless, these figures are only a tip of the iceberg. The clearest measure of underemployment and unemployment stood at 1704% as at October; this is the highest figure that has ever been recorded since the 1930s. According to a recent research, approximately 44% of families in America had experienced a pay cut reduction in hours, or a job loss in the previous year (Pepitone 5).

According to recent trends unemployment stood at 10.2% by the end of 2009 up from 4.4% in 2007. In 2007, this figure did not raise much concern until it began rising and reached 5% in March 2008. By this time, the economy of the US had contracted by over 7%. (Bureau of Labor Statistics, ).This led to the rapid increase in unemployment and by August 2008 the figure stood at 6.2% , it further rose to approximately 7.2% in November 2008, and by February 2009 it was 8.1%, and later in the year it reached 10.2%.

Since the 1983 recession, unemployment has never been over 10% for a period of 10 months. Economists are forecasting that unemployment will only drop slightly to approximately 9.7% by the end of this year. The projections also predict that these figures might subsequently decline in the future if the economy improves.

From the time the financial crisis began, a number of economists have tried to come up with predictions on when it might end. Nevertheless, their efforts have not bore any fruits; some are proposing that the invention of an entirely new model to predict economic growth is the only solution to forecasting when the economy will recover. No economist is sure of the shape that economic recovery might take. As at the third quarter of last year, the economy grew by approximately 2.2%; this is the first instance that it has grown since 2008. If this trend was to continue, then substantial growth will ultimately follow. However, there are a number of doubts on how long the economic turnaround will last, and the pace with which jobs will return.

Similar to other crises in the past, financial crises have always persisted for long periods of time, and this crisis is no different. In spite of the numerous bailouts, the balance sheets of many banks still remain extremely weak; over 140 banks collapsed in 2009. Consequently, banks have maintained strict lending rules and this has frustrated the efforts of small enterprises. These small businesses have contributed to over 50% of all job losses. On the other hand, exports are decreasing gradually and there is no hope from them. Even though, emerging markets such as Brazil, India, and China are growing rapidly, major markets for Japanese, European, and United states exports are still very weak. Anyhow, exports only contribute to 13% of the total production of US; therefore, even if they were to grow rapidly, the effect would be inconsiderable (Peck 12).

In the past, a majority of recessions reduce when individuals start spending, but the consumer demand is unlikely to steer economic growth in the foreseeable future. Large losses and huge debts have forced spending to decrease, thus, the economy is unlikely to improve.

Effects of unemployment in the United States

To a large extent, the effects of unemployment are undesirable and devastating. One effect is that people who are unemployed are not able to earn sufficient money to meet their financial requirements. The inability to pay rent or mortgages may result in homelessness through eviction and foreclosure. The increasing population of homeless people has resulted in the emergence of tent cities.

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Unemployment increases the chances of depression, low self-esteem, mental stress, illness and malnutrition. In the US, over 50% of unemployed workers undergo health and mental problems. Approximately 40% of unemployed parents say that their children have depicted signs of behavioral change, and over 25% rely on food stamps from the government. It is also estimated that a quarter of the 700,000 homeless individuals have severe mental illness and the number of people enrolling for Medicaid has increased by 6.6% over the current level since the recession began (Christopher 624).

Many individuals have also resorted to low-paying jobs although they are not a better choice. However, as it is impossible or difficult to access unemployment insurance benefits, individuals are forced to take such low-paying jobs. In addition, social responsibilities, lack of financial resources, and unemployment have led to the unemployed resorting to jobs that do not match their talents or skill.

In the long run, unemployment will lead to a loss of skills, and ultimately the loss of human capital. It also encourages protectionism and xenophobia because employees are afraid of loosing their jobs to foreigners. This might force the government to come up with measures to preserve the jobs of native and domestic employees by implementing barriers against foreigners, and putting tariffs and obstacles on immigration. The other social problem that results from unemployment is an increase in crime levels (Peck 16).

Increasing levels of unemployment can also lead to civil unrest and if it persists can lead to revolutions such as the collapse of the Weimar Republic. Unemployment results in the destruction of democratic institutions’ credibility and this is what triggers revolutions.

Despite the negative and undesirable effects, unemployment still has a number of advantages. One key advantage is that it can reduce cost-push inflation by managing wages. The increased competition for fewer jobs will make employees to work harder for fear of loosing their jobs. This will increase profitability and labor productivity as employers are able to maximize on the employees.

Unemployment is also used as a tool for controlling accelerated GDP growth so as to maintain sustainable levels in terms of environmental impacts and resource constraints. By controlling growth, the government can be able to come up with environmentally efficient ways of consumption and production which might offer a lasting and significant environmental benefit.


As discussed, the rise in unemployment has resulted in numerous negative and positive effects. If the situation persists, unemployment will probably change the character and life course of many young Americans and the generations to come in the future. This era will definitely leave a mark in the economic history of the United States. The effects have already had a devastating effect on the working population. Unlike other decades, the intensity of unemployment in this era is probably the worst ever witnessed. However, with the decrease in recession, there is a possibility that in the future unemployment will probably decrease.

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