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How Unemployment Affects Microeconomics?

Unemployment is a situation where a person is looking for a job but he is unable to find it. If you want to measure the health of any microeconomics, then unemployment is the best tool. The rate of economic growth decides the economic welfare of any country. There are several indicators that can help to measure the economic growth rate. Those indicators are industrialization, agriculture, and employment.

In this regard, the most important indicator is the employment rate. There is a direct relationship between the employment rate and economic growth rate. If this rate is high, then it will improve production. As a result of this, the standard of living will also improve. If this rate is low, then it has negative impacts on the economy. It will lead towards social and economic problems throughout the economy. The leading problems are less production, less income distribution, and a fall in the GDP rate.

Types of Unemployment:

There are several types of unemployment. Let’s discuss those:

  • Classical:

It is the type of unemployment where the wage is set above the market clearance level. As a result of this, the demand for jobs in the market increases. So, there are fewer jobs, but there are multiple applicants for a single post.

  • Cyclical:

This type of unemployment occurs due to decreasing aggregate demand in microeconomics. This type of unemployment fails to provide jobs to everyone. There is less production in the economy. For that production, there are few workers as the demand for goods and services decreases.

  • Structural:

It occurs when the labor market fails to provide jobs to the workers who are willing to work. As a result, there is a mismatch between the skills of labor and the skills required.

  • Frictional:

It is the time when a worker is searching for a job or switching from one job to another.

  • Long-term:

If the unemployment period is longer than a year, then it is long-term employment.

Apart from this, there is another type that is hidden employment. In this type, the potential unemployed workers are not included in official accounts. A person is jobless if he is looking for a job.

How to Measure Unemployment?

You can calculate the unemployment rate in microeconomics when you divide the number of unemployed by employed individuals in the total workforce. The value you get is the rate of unemployment. There are four methods that can help to find the rate of unemployment.

Labor Force Sample Surveys:

This method provides the most comprehensive results regarding the rate of unemployment. This category includes data from different categories such as race and gender.

Official Estimates:

In this method, official statistics help to determine the rate of unemployment.

Social Insurance Statistics:

These are the statistics based on the social departments. These departments are providing benefits to the unemployed. It is not an accurate way to calculate the level of unemployment. The reason is benefits can expire even before a person finds a job.

Employment Office Statistics:

This method includes only those individuals who enter the employment offices. Therefore, this is also the least effective method.

These are four methods to calculate the rate of unemployment. Out of these, only the labor force sample survey method is effective.

Causes of Unemployment:

There are several causes of unemployment. These causes depend upon the condition of the microeconomics situation in the country. Apart from this, it depends upon the perception of the individual. Here are a few of the causes:

Change in Technology:

It is one of the major causes of unemployment. When technology changes, the employer will look for people who are technology experts. These people will substitute the less efficient staff. As a result of this, unemployment increases.


It is another major reason. When a country is facing a financial crisis, it will experience a high level of unemployment. Average income will fall and will increase inequality.

Job Dissatisfaction:

It is another cause of unemployment. When high-performing staff gets less attention from employers, then they will be hurt. It will lead towards a lack of attention and desire to work. As a result of this, people will quit their jobs.

Effects of Unemployment:

There are several impacts of unemployment on microeconomics. Let’s discuss those too:

Effect on Economy:

According to a dissertation help firm, it is important to note that the rate of unemployment varies from economy to economy. In developed countries, this rate is low because people are self-employed. However, it has serious impacts on the economy. If this rate is high, then productivity will fall even below the normal level. As a result of this, the government has to borrow. In this state of the economy, even employed workers will spend less to save their jobs. If there is a high unemployment rate, then the government has to suffer a lot. It has to spend hefty amounts in terms of benefits to unemployed people.

Social Effects:

Apart from impacting the economy, unemployment has social effects too. So let’s discuss those too:

Loss Skills:

If a person remains unemployed for a long time, he will lose his skills. If a person is not using his skill, then he is causing a human capital loss.

Mental Illness:

Again, if a person is unemployed, then he is likely to face mental illness. As a result of unemployment, he will lose self-confidence. He will adopt a negative attitude when there is a loss of income.

Increase in Crime Rate:

The crime rate in society will increase if there is a high level of unemployment. If a person has no source of income, then he can go to any extreme.

Political Instability:

If there is unemployment, people will lose trust in the government. As a result of this, there may be political instability.


Unemployment is a state where a person looks for a job but unable to find one. It has some serious impacts on microeconomics. Because of this issue, the government will borrow from external sources. Apart from this, it has serious economic and social consequences. There are several reasons for unemployment in the economy. Several methods are used to calculate the unemployment rate.  It is the responsibility of the government to bring this rate down. Else, the economy will suffer a lot.

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