Unemployment takes place when people who are willing and able to work are in an economy fail to find employment opportunities (Tucker 194). Governments of most nations use the rate of unemployment in their countries to determine how the economy in their country has improved. This rate measures the unemployment prevalence by dividing the quantity of unemployed individuals searching for jobs in the market with the total number of employed individuals who are currently in the labor force in that country. This essay focuses on the causes of unemployment in economy. It gives the effects of unemployment on the economy, an individual and the whole society. There are several causes of unemployment that result negatively in the economy, the individual who is unemployed and the society.

Unemployment occurs when trade unions and wage councils force the level of real wages above the market clearing level. This leads to a type of unemployment known as real wage unemployment. The reason that trade unions force the level of real wages above the market clearing level is in an attempt of ensuring that the employers do not exploit the services of their employees (Tucker 203). In addition to this, they aim at ensuring that employees get more income that would enable them to improve their standards of living. Moreover, these laws restrict the authority of employers to fire their employees. Due to this, employers do not hire new employees since they will incur more costs in paying these employees wages above the market clearing level (Sexton 584). This causes the number of people seeking employment to be more than the vacancies for job opportunities available in the market leading to unemployment.

Transition of the economy

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Transition of the economy through business cycles causes unemployment. During economic recessions, unemployment levels increase since most of the industries shut down their operations due to heavy losses (Sexton 596). This is because the consumer’s purchasing power decreases within this period. This obliges them to purchase only commodities that are necessary for survival due to the budget constraints. Companies producing luxury goods make the greatest losses. Some industries lay off a percentage of their workforce in an attempt of reducing their labor overheads so that they remain in business during this period. This leads to an increase in the levels of unemployment. Furthermore, some companies reduce the number of their branches by shutting down the braches that incur the most losses. This leads to the loss of job by the workers in these branches (Tucker 211). Since the demand for products reduces during this period, companies decide to reduce their production levels by producing fewer units or working in fewer days per week. This causes workers to lose their jobs. Since the number of workers seeking employment is more than the vacancies that are available in the market during recession, unemployment arises.

Unemployment caused by people changing from one job to another

When graduates complete their education, it may take time for them to find their dream jobs. During the time that they are searching for jobs, they become unemployed. A worker may voluntarily change his current job since he/she feels that the job is not paying him/her well enough considering his/her experience (Tucker 224). During the period that he/she looks for an alternative form of employment, this worker would be unemployed. A worker may also change his employment since the current employment does not relate to his tastes. The employer may post a worker in the accounting department but his/her tastes may be in art. People also quit their employment because of the strict work time of the previous employment and unfavorable location of the previous employment. During the period that the worker moves from one job to another, he/she becomes unemployed raising the unemployment levels.

A mismatch between the skills of the labor force and the industrial requirements of new job opportunities

This normally arises due to the effects of capital labor substitution and decline of demand of goods in a particular industry (Tucker 235). If an industry advances its technology, then all the workers in the market who may be willing to work in that industry may not get opportunities if they do not match their technological requirements. In addition to this, an industry may change its methods of productions. If the workers in the industry seeking employment in the production sector of this industry underwent training using outdated production techniques, then they may not get employment in this sector.

High levels of unemployment affect the economy of countries negatively due to the loss of income of the citizens. Thus, the living standards of the citizens reduce since they cannot get money required to access quality medical care or education. There spending power also reduces and thus they fail to maximize their utility (Knight 279). Moreover, most of the citizens who are unemployed do not have the money to pay their mortgages. Unemployment also leads to loss of the national output of a country. Since a country cannot meet its target output, it imports most of its goods making it incur more expenses. The government also loses tax revenues. This is because it loses money that it would have collected from income taxes since most of the people are unemployed (Knight 290). In addition to this, it loses the value-added tax since the citizens will have low purchasing power due to unemployment.

Negative effects of unemployment on the life of an individual

If a person is unemployed, he/she may develop mental complications. This is because he may have a low self-esteem since he/she feels that the society does not value his/her skills or his/her presence. It is sad to learn the fact that unemployed people suffer from depression and in some instances commit suicide (Gold, & Shauman 72). This person may also quarrel with all his family members in attempt to relieve the stress that he/she may be having. This leads to the increase in the rates of broken families and divorces due to unemployment. A person may also become hopeless preventing him/her from pursuing the desires and dreams that he or she hoped to achieve in life. Research has shown that unemployed individuals have higher chances of suffering from somatization and anxiety compared to employed individuals (Gold, & Shauman 78). Furthermore, they make more visits to physicians due to diseases related to stress such as high blood pressure and ulcers.

High levels of unemployment affects the society that we live in. The level of crime rates increases due to unemployment. This is because the unemployed citizens do not have jobs to source their income, so they see it fit to engage in crime in order to get money to sustain their lives. This leads to a high number of youths who the courts sentence for jail terms due to crime (Dooley, & Prause 22). Furthermore, the level of prostitution also increases. Some people opt to sell their bodies so that they get money for sustaining their families. Prostitution leads to spread of dangerous diseases such HIV, syphilis and gonorrhea (Gold, & Shauman 82). Unemployment also leads to the spread of drug abuse among the society. Unemployed people opt to become drug peddlers in an attempt of getting money that would help them pay their bills. Drug abuse has caused many deaths among the youths due to overdose. It also causes an increase in the number of divorces in the society. Most partners leave their spouses if they discover that the spouse does not have enough money to support the upkeep of their family. The divisions in the society also increase due to unemployment. This is because hatred occurs between the employed and the unemployed. The employed view the unemployed citizens as failures.


It is evident there are several causes of unemployment resulting to negative effects to the economy, the individual who is unemployed and to the society of a particular nation. When trade unions force the levels of real wage above the market-clearing rate, levels of unemployment increase since employers would not be willing to employ extra work force due high labor overheads. The transition of the economy in business cycles causes unemployment since during recession, companies lay off staff to reduce overheads. When people change their jobs, they experience unemployment during the period of transition. A mismatch between the skills of a particular employee and the industrial requirements also causes unemployment. This mainly results from technological changes. Unemployment leads to negative effects in the economy since the government collects less tax from the citizens. In addition to this, it leads to negative implications to the health of the unemployed individual since he/she may suffer from depression. Lastly, it leads to negative effects of the society since crime rates and prostitution increase.

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