Consequences of Unemployment in The World Economies

            The goal of the research paper is to explore the consequences of unemployment for the various world economies. The high unemployment rate brings lots of problems for the countries, which ultimately have a negative impact on the society & economy. This paper provides an overview of the causes of unemployment and how unemployment can be mitigated.

Consequences of Unemployment to world economies

There are many severe consequences of unemployment in world economies. Some major consequences are discussed as follows:

The decline in GDP Growth

        When the unemployment raises in any region of the world, then the GDP growth experience decline. The unemployment and GDP of any country have a strong relationship. The unemployment rate increases when there are not many businesses operating in the region. Due to the decrease in economic activity in a specific region, the unemployment rate increases. The GDP of the country also experience decline when the unemployed workers permanently leave from the job market. It means that in future, the economic growth will experience hurdle because of low labour availability (Trivedi, 2002).

Source: https://www.ilo.org/ilostat/faces/wcnav_defaultSelection?_afrLoop=4032336304546&_afrWindowMode=0&_afrWindowId=5cr4gwnws_54#!%40%40%3F_afrWindowId%3D5cr4gwnws_54%26_afrLoop%3D4032336304546%26_afrWindowMode%3D0%26_adf.ctrl-state%3D5cr4gwnws_110

The above table & graph are showing the unemployment rate in the world.

Increase in Budget Deficit

        When unemployment increases in any country than this means that the governments would have to spend more money on rehabilitation or facilitation of the families who are experiencing unemployment. In addition, the tax revenue of the government also declines because of an increase in the unemployment rate. It means that the budget deficit of the country will experience an increase, which is not good for the economy (Barro, 2007).

The decrease in Standard of Living

        The rise in unemployment means that people do not have a job from where they earn their livelihood. From unemployment, the standard of living of the people starts decreasing because they have not enough money to afford a higher standard of living. The spending power of individuals also decreases as a result. It means that the sales of many organizations will decrease, which ultimately affect economic growth.

Social Deprivation of Consequences of Unemployment in the World Economies

        The unemployment rate is associated with many social issues such as an increase in crime rate, increase in health-related issues, increase in divorce rate and many other issues. The unemployment rate also causes income inequality in the region. Therefore it is highly important for the governments to take serious initiatives to reduce the unemployment rates; otherwise, the region which is facing unemployment would have to face serious consequences (Mankiw, 2008).

Curing Unemployment with Economic growth

        There are many ways through which unemployment rate can be reduced. Encouraging economic growth is one of the best ways to reduce unemployment in any region of the world. Economic growth can be increased by attracting foreign direct investment in the country. When the foreign multinational corporations are going to invest in the country, then many new jobs will be created, which will ultimately reduce the unemployment rate. In recent years many multinational corporations want to invest in other countries so that they can expand their current operations. Therefore in current economic conditions attracting foreign direct investment is not as hard as it seems if the countries provide facilities to the investors (Barro, 2007).

        In current economic conditions if the countries provide tax exemptions to the businesses & investors than the economy can experience growth. The changing in the monetary policy of any region can also help the country to increase economic growth. Through reducing interest rates, a country can increase business activities. When interest rates are higher, the business does not invest, but with lower interest rates, the government can facilitate investors to increase investment, which ultimately helps the country to boost economic growth and reduce the unemployment rate. If any country improves its policies regarding taxes & interest rates, than it is possible to increase economic activity. Another option for increasing economic activities is to provide subsidies on the regions which are more depressed with respect to unemployment. When the organizations realise that the government is providing subsidies for working in those regions than the business will definitely think about operating in those regions.

Through the above diagram, it can be seen that how high-interest rates cause a decline in economic growth. With lower interest rates increase in economic growth is possible.

Investment in Third World Countries of Consequences of Unemployment in the World Economies

        The economy of the third world countries is not as good as the developed countries. The third world countries do not have proper infrastructure and other facilities which the developed countries have. However, the developed countries must help third world countries by investing in the countries. Although investing in such countries is a huge risk, but it also provides opportunities to the developed countries to not only contribute in improving the economy of third world countries but also to realize what are the needs & preference of the customers.

        In third world countries, there are many people who want to purchase the products of foreign brands. If the developed countries are going to invest in developing or third world countries, then there is huge potential that the corporations will be able to generate a huge amount of profit. Many foreign companies like Coca Cola, Pepsi & Unilever etc. have a presence in many countries and achieving a significant amount of profit. So it can be said that investment in third world countries will help them to grow their economies, reduce the unemployment rate and increase in overall Standard of living in the region (Barro, 2007).

Risk of Investment in Third World Countries

        As discussed earlier, there would be a significant amount of risk if the corporations decided to invest in third world countries. The changes in economic, political and social factors will cause serious problems for international investors. However, it does not means that developed countries do not consider the investment. For mitigating the risk, the corporations should perform detail analysis of the country’s economy & which factors will affect the company if it thinks about investment in the country. Through proper analysis of the market conditions, the company can mitigate the risk of investment.

        Some developing countries have favourable policies for investors and provide protection to international investors. So investing in such countries would be a rational decision. Through proper advertisement and marketing efforts, foreign brands can increase their sales in the third world counties. The approaches such as localization and low prices to the customers can help the companies to increase their market share in the country. It can be said that the risk is high for the investors, but that risk can be mitigated through various approaches, and despite the risk, companies can achieve profit. So the investors should invest in the countries so that not only the country can increase it economy but also can mitigate issues like unemployment and low standard of living (Arnold, 2008).

Recommendation for Dealing with Unemployment Rate

        It is recommended that the governments who are experiencing the problem of unemployment can take various initiatives for reducing unemployment, such as encouraging economic growth in the country. Economic growth can be increased by attracting FDI in the country. For this, the government can make a policy for facilitating the investors.  The government can provide tax exceptions along with investment protection. For increasing the economic growth, the countries can change their monetary policy in which they can lower the interest rates. Low-Interest rates increase business activities in any country (Gupta, 2004).

        It is highly important for the countries to implement such policies which attract investment from various countries when the investment increases the people gets jobs which ultimately reduces the problems such as crime rate, a lower standard of living etc. For mitigating the issues like high budget deficit and low customer spending, it is important to increase the business activities. There is a risk in investment, but the risk in investment can be controlled with the help of proper analysis of the market conditions in the developing & third world countries.

Conclusion on Consequences of Unemployment in the World Economies

        If the above facts are concise, then it can be said that the unemployment rate increases when there are not many businesses operating in the region. Due to the decrease in economic activity in a specific region, the unemployment rate increases. The GDP of the country also experience decline when the unemployed workers permanently leave from the job market. The unemployment rate is associated with many social issues such as an increase in crime rate, increase in health-related issues, increase in divorce rate and many other issues. The unemployment rate also causes income inequality in the region.

        The economy of the third world countries is not as good as the developed countries. The third world countries do not have proper infrastructure and other facilities which the developed countries have. However, the developed countries must help third world countries by investing in the countries. It is recommended that the governments who are experiencing the problem of unemployment can take various initiatives for reducing unemployment, such as encouraging economic growth in the country. Economic growth can be increased by attracting FDI in the country. For this, the government can make a policy for facilitating the investors.  There is a risk in investment, but the risk in investment can be controlled with the help of proper analysis of the market conditions.

References of Consequences of Unemployment in the World Economies

Arnold, R. A., 2008. Economics. s.l.:Cengage Learning.

Barro, R., 2007. Macroeconomics: A Modern Approach. s.l.:Cengage Learning.

Gupta, G. S., 2004. Macroeconomics: Theory and Applications. s.l.:Tata McGraw-Hill Education.

Mankiw, N. G., 2008. Principles of Economics. s.l.:Cengage Learning.

Trivedi, 2002. Managerial Economics:Theory & Application. s.l.:Tata McGraw-Hill Education.