Low Unemployment

Understanding Low Unemployment

• Unemployment is defined as the state in which people are actively looking for work but are not currently employed.
• A system with low unemployment is characterised by a small percentage of the workforce being unemployed, showing a strong, healthy economy.
• The unemployment rate measures the number of unemployed as a percentage of the labour force.

Causes of Low Unemployment

• Strong economic growth: When an economy is growing and businesses are thriving, more jobs are created leading to decreased levels of unemployment.
• Technological advancements: Improved technology can lead to an increase in labour demand, hence reducing unemployment.
• Flexible labour market: If it’s easier for businesses to hire and fire employees, they may be more likely to hire, reducing unemployment.
• Education and training: A well-educated and highly trained workforce may find it easier to secure employment, leading to lower unemployment rates.

Effects of Low Unemployment

• Increased standard of living: More people in employment leads to higher average income and better standards of living for many households.
• Fiscal benefits: Governments receive more income tax and need to spend less on benefits, both of which improve their fiscal position.
• Increased economic inequality: Jobs may be created in high skilled industries, which might lead to higher earnings for those employees and increase inequality.
• Potential for inflation: Low levels of unemployment can lead to an increase in demand for goods and services, potentially causing a rise in prices, leading to inflation.

Policies to Achieve Low Unemployment

• Fiscal policy: Government can increase public spending to stimulate job creation.
• Monetary policy: Lowering interest rates can encourage investment, leading to economic expansion and reduction of unemployment levels.
• Education and training: Government can focus on equipping the population with skills required in the job market, hence tackling structural unemployment.

The Balance Between Low Unemployment and Other Economic Objectives

• Maintaining low unemployment and inflation (also known as the Philips Curve dilemma): Governments must balance low unemployment with the potential for rising inflation.
• Low unemployment and economic growth: Governments must ensure that the economic growth that leads to low unemployment is long-term and sustainable to avoid future unemployment issues.
• Low unemployment and income distribution: Ensuring that low unemployment doesn’t lead to increased economic inequality is a key concern for policymakers.