The Effects Of Unemployment On The Economy Essay

836 Words Oct 29th, 2014 4 Pages
An economy’s ability to grow depends on several key factors such as the production of goods and services as well as the monetary contribution by households and firms in consuming and producing these goods and services. The purchasing power of households and firms is entirely dependent upon the value of the dollar and their income or profits. As economies encounter periods of recession the purchasing power of both households and firms decline due to a decrease in employment, which resulting in a decline in household wealth and overall spending, and inflation accompanied by high interest rates, that results in less borrowing and spending by firms and households. During times of economic downturns, economists have observed that firms tend to layoff workers to compensate for the decrease in demand and skepticism about future profits. These layoffs amongst firms cause an economy to experience high levels of unemployment. Unemployment can be defined as being without work or actively seeking a job within the timeframe of a month or longer. According to the Bureau of Labor Statistics (BLS), the employed and the unemployed compose the labor-force of a given economy. To calculate the total number or percentage of individuals in the labor-force who are unemployed the BLS uses the following formula: U= (number of unemployed)/(Labor-force)×100. There are three types of unemployment that individuals experience. Frictional, structural, and cyclical unemployment each differ in the length…

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