Q&A - How are businesses affected by unemployment?

Businesses are affected in a variety of ways depending on whether unemployment is high or low, and rising or falling.

Some business implications of rising / high unemployment include:

• Lower consumer spending = lower demand for income-elastic products
• Demand for inferior goods (lower price, quality) may increase
• Greater supply of labour – potentially lower wage/salary levels
• Unemployment creates insecurity in the workforce; potentially a cause of lower morale and de-motivation
• Danger of lost skills for industries as a whole
• Business may be impacted by social problems associated with high unemployment (e.g. rising crime)
• Recruitment (in theory) becomes easier – there should be more applicants for each vacancy
• Lower staff turnover – employees less likely to be able to find other jobs, or want to move in an uncertain economic climate

Some business implications of falling / low unemployment:
• Consumers have more income = higher demand for income elastic goods
• Labour market “tightens” – increased upward pressure on wages / salaries
• Harder to recruit or expand without offering better worker packages – potentially affects ability to increase capacity
• Greater sense of job security and motivation in the workforce if the business is doing well

The appropriate response to changes in unemployment will depend on several factors, including:
• The nature / cause of unemployment (e.g. cyclical, structural, seasonal)
• The labour-intensity of the business
• The ability of the business to respond (resources, management structure etc)

Some typical responses are as follows:

An important evaluation point to remember is that many appropriate businesses actions will take place before a significant change in unemployment becomes apparent.  A business that is anticipating structural or cyclical changes in its business will ideally take action before those changes take full effect.

BUSINESS TEACHER RESOURCE NEWSLETTER
Get first news of business teaching resources, ideas and other materials from tutor2u. Over 5,000 business teachers from the UK and around the world receive our regular teacher email newsletters. Sign up for free here!

Comments