Unemployment Causes in the Economy

Unemployment is defined in economics as a condition where people actively searching for jobs remain jobless over the last month. The unemployment rate is calculated by the Bureau of Labor Statistics through sample surveys being conducted to a total of 60,000 households across 250 metropolitan areas. The results of the surveys are released in a report which is made public to media every first Friday of the month.

There are many causes for unemployment when we speak of its economic indicators. One of them is the actions made by labor unions. Labor unions are groups of workers who come together to request for higher wages and more benefits from their respective companies and employers. Unions basically force companies and organizations to pay their workers higher than what they are currently receiving. Certain minimum wage laws also affect the outcomes of actions made by labor unions to get more benefits. In order to arrive at an agreement some firms may deem it necessary to delay hiring of new employees in order to compensate the demands of their current workers with what the company can offer according to their business output.

Raising minimum wage laws can also increase unemployment. People above minimum wages generally ask for an increase in wages at any given point in time; this then results to higher position employees to also request for wage increase. This scenario has a similar effect with that of actions made by labor unions. When a firm spends on more money for salaries and benefits, they will need to take measures to recover money lost by cutting down jobs and postponing or canceling new job offers.

Efficiency wages are generally given when firms want to benefit more by paying their loyal workers more than the equilibrium wages. However, when done beyond the maximum levels, this will cause an excess in labor supply; more people are applying for jobs than what are available. Efficiency wages increase the salaries of workers but will contribute to the overall unemployment rate of a nation.