Although unemployment is low at 4.2 percent according to the Bureau of Labor Statistics' latest jobs report, it's as guaranteed as death and taxes and will most likely climb again. The effects of unemployment can be far-reaching and, strangely enough, contagious. One person losing his job has a ripple effect. He can't contribute to the local economy, affecting the revenues of the companies that once provided him with goods and services.
The Ripple Effect on Individuals and Society
A person who loses his job no longer has the income to sustain his lifestyle. He may not be able to pay his rent or mortgage, buy groceries, pay for his utilities, eat in restaurants, see movies, drive his car or pay for his kids' piano lessons. The businesses that relied on his patronage will earn less money, which has an effect on their bottom line. In turn, they may have to lay off workers to absorb the effects of less revenue, resulting in another unemployed person who goes through the same type of cycle. This results in a ripple effect, making unemployment just as contagious as a deadly disease like Ebola. Unemployment is also a geographic phenomenon as the people in the local economy are the ones who are affected. If more jobs are not created, unemployment can continue to spread out and even linger, resulting in hot spots, or areas that are disadvantaged, such as those representing certain ethnicities, educational abilities or sexual orientations.
Unemployment Can't Be Zero
As strange as it may sound, the U.S. government has actually designed monetary policy that requires unemployment to remain at a certain level in order to control inflation. Like unemployment having a ripple effect in terms of being contagious, it also has a ripple effect when the unemployment rate gets too low. The Federal Reserve raises interest rates, which also affect a business' bottom line. Businesses have to cut costs somewhere, and labor is often the biggest expense. Higher interest rates mean more people are laid off and suddenly unemployed. The cycle starts all over again, which is why the 4.2 percent rate is destined to rise again.
The Costs of Unemployment
Not only does unemployment have serious economic implications, but it affects personal well-being and the way society functions. Professor Pavlina Tchervena has likened unemployment to a disease in the way it spreads and negatively affects people and society. People who are unemployed may feel depressed or suicidal. They may experience physical impairments from the stress and make poor choices when it comes to their families and following the law. They may not know how to apply for unemployment benefits or be aware that they're even eligible for them. Policymakers need to take a fresh look at unemployment. If it is a disease, maybe they should think of ways to stop the infection and vaccinate society against its ill effects.
The ripple effect of unemployment is more widespread than many people may even imagine. Viewing unemployment as a contagious disease that harms all it touches may encourage the government to take measures against its negative effects.
Photo courtesy of Stuart Miles at FreeDigitalPhotos.net