The Macroeconomics and Microeconomics of Unemployment

Unemployment is a major macroeconomic indicator of a nation. This means that unemployment directly affects the overall economic condition within the country. It is for this reason the United States, through the Bureau of Labor Statistics of the Department of Labor, conducts monthly surveys in 60 household of 250 metropolitan areas to measure unemployment rate. The number of unemployed people over a period of time is calculated versus the total number of employed and unemployed (labor force is the sum of unemployed and employed.

While this survey done on households is a reliable measure of unemployment rate, another survey called the payroll survey also has bearing on employment conditions. The Bureau of Labor Statistics asks large and small employers to indicate the number of employees in their payrolls.

In layman’s discussions, when unemployment is high which reaches to double digit numbers, this will result to an increasing number of people who do not have enough resources to support their daily needs due to loss of income. In effect, citizens do not have enough buying power to purchase the good and services provided by business sectors. Where there is a low demand for goods offered because a majority of people cannot pay for them, then business sectors will suffer. In the long run when consecutive periods such as these are observed in the market, many businesses will experience losses. When they cannot sustain the losses, then they will have to take measures to save on costs; one of these measures would be to cut down on wages expenses that can be realized layoffs.

There are also microeconomic reasons for unemployment. For instance, certain laws can increase unemployment rate. There are nations for example which have laws that prohibit employers to lay off an employee without an approval process with the government. The US Department of Labor’s unemployment insurance program does not force the unemployed to get a job beyond the scope of their work experience, which will then motivate them to continue filing for weekly unemployment compensation. Taxes imposed on employee wages may also convince workers to wait for a job that pays a lot.