EFFECT OF ECONOMY ON UNEMPLOYMENT

Unemployment is the result of a recession in which as economic growth slows, companies produce
less revenue and hence they have to cut workforce to decrease costs.
Increased unemployment also leads to a drop in consumer spending and slowing growth even further
escalates the process, which forces businesses to lay off more workers.
If the economy appears to be favourable, companies tend to invest more in their businesses for the
medium to long-term by expanding and upgrading their operations.
Business investment and spending generally include large spending on equipment or technology to
improve their production output.
In doing so, companies tend to hire more workers to help with the added marketing staff, production
staff as well as software engineers to program and run the machinery.
We must first examine the factors that drive growth and employment and then explore how recessions
and unemployment relate to each other. Gross domestic product (GDP) is used to measure growth in
an economy. GDP is the aggregate total of all the goods and services produced in a country.
Consumer spending and business investment are two key factors to drive growth.

If consumer spending is vigorous, consumers might increase purchases of cars, clothes, homes and
electronic devices. Employment or jobs are created in industries such as the retail or clothing sectors,
banks as a result of all this spending, that supply the mortgages and credit cards that consumers use,
as well as any business that sells to consumers.

The increase in business investment also helps additional businesses, including banks that lend to
companies, so they can finance their new purchases such as equipment and resources.

Two or more consecutive quarters of negative economic growth lead to a recession and also GDP
growth contracts during a recession period. Business sales and revenues decrease when an
economy is facing recession also it causes businesses to stop expanding and hiring. Businesses start
to report losses when demand is not high enough.

As during the Great Recession of 2008 and 2009, banks were impacted due to huge defaults. Banks
suffered massive losses, which led to fewer new loans being issued and hence it effected overall
economy.

Equipment, software, and structure spending or physical assets like plant and machinery, purchase
orders and equipment all declined in 2008 and 2009. Hence overall business spending declined in the
that period.

Lowering wages or refraining from hiring new workers were the first step to reduce cost as companies
struggled with less cash and revenue, which can eventually stop employment growth. A recession can
cause companies to report financial losses while some companies go bankrupt leading to companies
laying workers off.

Consumers tend to save money or spend less, when there are layoffs and no new jobs being created.
With less business and consumer spending, there is less money in the economy and as a result there
is a decrease in the demand for goods occurs and leads to lower growth rates for companies and the
overall economy.