why is low unemployment rates good for the economy?

Question

Im doing a research paper and just need to reasure myself the benefits in the economy and long term benefits of having low unemployment rates.

Answer 1

Homer's answer is correct, but within the frame of mainstream (in this case "New Classical") economic theories.
It all revolves around the notion of "Non Inflation-Acceraling Rate of Unemployment", which is a refinement of Milton Friedman's models from the 70's.
So if you accept these theories as best suited to represent reality, then unemployment can be too low.
You could also have a look at marxian theories, in which a "reserve army" of workers is needed to give capitalists more leverage in class struggle (basically, it helps keeping wages at the lowest possible level).

And you could also poke your nose into anthropological studies, and see that some societies actually "ban" unemployment completely by sharing work (the rationale behind that being that socialization happens through work, which makes keeping everyone busy fundamental). It means that the most numerous the people in the community, the less output each individual will have (but each individual will have the same amount of work counted in hours, they will just work more slowly).A widely documented case would be for example farmer communities in Madagasdar (but there are many others).

whether it's good or not for the economy is more a matter of values and political choice than a positive statement.

Answer 2

Well turn that around. Would high unemployment rate be good for the economy?

A low unemployment rate means that there is a demand for workers. This is typical in an economy that is expanding.

I would compare the United States Growth rate and unemployment levels to the EU over the same time frame.

Answer 3

I can't believe how INCOMPLETE the previous answers are.

True, low unemployment means more output, more income, more consumption, less poverty, less need for welfare payments, etc. One aspect not touched on by anyone else is the relationship between employment and crime. Crime and the associated costs are lower when unemployment i low and economic growth high. However, the exact nature of thi correlation is still contentious.


HOWEVER, unemployment can be TOO low. When this happens it creates inflation because employers have to continually raise wages to poach employees of other firms, which creates all of the problems that inflation creates (i.e. contracting, planning, wealth transfer, etc). In addition, since firms have to expend more resources on retaining and attracting employees, they spend less effort on doing whatever it is that they do. Consequently, the inefficient use of resources results in less innovation, slower productivity growth, less consumer choice, and other similar evils.



In addition, if unemployment is measured as it is in the US, it does not capture the presence or effect of under-employment or discouraged workers (those that choose to leave the labor force). Thus, a low employment rate can mask the beneficial (or lack there of) nature of existing employment.

Answer 4

The economy is not an abstract object but is how people earn their livelihood. High unemployment rates are bad because they are bad for the unemployed people and because they waste labor resources. The negative effect show as a lower GDP because some good and services that could be available are not being produced

Answer 5

Usually unemployment rates are based on who's collecting a check from the government. With low unemployment rate it means that more people are working and taking less cash from the government which means we have a stable economy.

Answer 6

you could no longer have an financial device with 0 % unemployment. it relatively is impossible simply by new entries on the activity industry, people searching for jobs, and individuals getting older out of the financial device. the closest to desirable financial device is 3-4% unemployment. Edit: properly, you could no longer have an in depth to 0 unemployment fee until eventually a rustic is mendacity approximately its costs. that's impossible economically. Take a simple course in econ.

Answer 7

Low unemployment rate in a country signifies high GDP. This means the Gross Domestic Product of the country is high enough that people/citizens have enough purchasing power as well as power to produce. This, in someway affects the Gross National Product as well.

Answer 8

Low unemployment rate = most people working, earning (and moreso spending) money.

More money into the coffers than coming out you might say.

Answer 9

it means there are less people sitting on welfare or unemployment, and the government is collecting huge amounts of tax off working peoples cheques so they are happy.

Answer 10

If more people work, more people pay taxes gives the governments (local and federal) more money.
If more people work, more people have money to buy things.
If more people buy things, companies will have to increase their supply which will add to more workers, unless you are Walmart.