Causes and Effects of Unemployment

The growing unemployment rate is a serious challenge to the economy and socioeconomic stability because the growing unemployment rate aggravates the economic situation. Even though unemployment is not the cause of economic recession or deterioration of the economic situation, it still aggravates the economic situation considerably. The unemployment rate, in its turn, depends on the economic situation. Therefore, there is a vicious circle, where the deterioration of the economic situation provokes the growing unemployment rate, while the growing unemployment rate aggravates the economic situation even more.

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On analyzing the major causes of the growing unemployment, it is possible to define economic factors as the major, if not to say, the only causes of unemployment. There are several economic factors that may provoke unemployment. First, the crisis of overproduction occurs when the offer of products or services exceeds substantially existing demand. The overproduction forces companies to save costs and they use job cuts to compensate losses caused by the excess of offer over demand. In such a situation, companies do not need as much employees as they used before, when the offer matched the demand.

Second, the financial crisis provoked by different factors, such as speculations, for instance, increases the unemployment rate because many businesses run bankrupt under the impact of the financial crisis and their employees just lose their jobs. In addition, the economic recession leads to the slowdown of business activities, drop of consumption and overall economic depression that also contribute to the rise of the unemployment rate because the low business activities and consumption force companies to cut jobs to save their costs. At the same time, it is important to remember that companies do not need as much employees in the time of economic recession as they used to do before that leads to substantial job cuts.

The poor government policy is another factor that may cause the growth of unemployment rate. In fact, government should focus on regulation of key macroeconomic issues, such as unemployment, inflation and GDP growth. The government can stimulate the drop of unemployment rate through its fiscal policies, for instance. On the other hand, the government can provoke the rise of unemployment rate through ineffective fiscal policies and economic policies at large. Therefore, along with the economic crisis, government policies are important factors provoking unemployment.

In this regard, the government should pay a lot of attention to the prevention of the growth of unemployment rate because it can aggravate consistently the economic situation, while effects of unemployment may be disastrous. In fact, unemployment provokes the further decline of consumption and stimulates saving that is disastrous for the contemporary open market economy, which is oriented on consumerism. The drop of consumption provokes the economic crisis or aggravates it. Second, unemployment leads to the growing social tension because unemployed have no means for living. In such a situation, the government should provide unemployed with means for living. Otherwise, being in a desperate position, unemployed will start civil disobedience to protest against their position, they may start committing crimes to earn for living and, finally, they may just start riots and large scale rebellion to change the existing social order, where they have no means for living and are doomed to starvation. Even though the latter effect is the most extreme and the rarest one but it is the ultimate end of the growing unemployment and inability of the government to stop it.

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