Economic Indicator: Unemployment
The unemployment rate, meaning those who are unemployed and searching for jobs, is a key economic indicator, not only because it affects a person and their family’s income, but it also impacts society as a whole, as it can lead to the decline of goods and services being produced, as well as a decline in consumption, which, if looked at as a butterfly effect, can also affect those who are employed. Because the majority of the U.S. GDP is consumer spending, a high unemployment rate would hurt the economy because those who are unemployed consume at lower rates. Although the consumer spending at the beginning of the pandemic was still strong due to the added unemployment benefits, the elimination of these benefits could launch us back into a lower rate of consumer spending, negatively impacting the economy.
Due to the nature of the virus, the COVID-19 pandemic drastically affected the unemployment rate, skyrocketing it to 15 percent at the height of the pandemic. The unemployment rate has since declined to 5.4 percent, but interestingly enough, this doesn’t necessarily mean employment is where the economy needs it to be. In fact, part of the decrease in the unemployment rate could be due to a growing portion of people who have given up on finding a job or are not actively searching for one, for various reasons, especially health concerns and because unemployment benefits lessen the urgency of finding one. The opposite is also true, as recent economic expansion and broad labor shortage have caused more people to rejoin the search for work.
Now, pandemic unemployment benefits will be ending on a national level this month. Although businesses hope this helps to alleviate their worker shortage and that this can boost the economy, that’s not certain. Many people who have been unemployed long-term may have a harder time finding jobs, as the issue driving labor shortage is the supply of labor doesn’t match the skills required.
So, while some might argue that the termination of pandemic unemployment benefits could be necessary to raise employment, it may not be the case. The stagnation of job growth, especially due to a surge of the Delta-variant, in addition to the termination of pandemic unemployment benefits, will mostly impact spending. It has been shown that states that have already taken away some federal benefits have witnessed a big decrease in spending. So, while a decreasing unemployment rate is a good thing, it’s important to look at all the factors that shape it. An increase in those unemployed and not seeking jobs can lead to businesses not producing as much. Taking away unemployment benefits as a fix to this issue could backfire, as instead of pushing people to find employment, it decreases spending. If spending is decreased, businesses receive less money that could go towards hiring more employees. This is why the employment rate is so interesting and important as an economic indicator because it’s a constant cycle of falling dominoes: one action directly affecting the next.
Sources Cited:
https://www.wvtm13.com/article/video-ida-brings-massive-flooding-devastating-winds/37425625
https://www.bls.gov/news.release/empsit.t15.htm
https://sgp.fas.org/crs/misc/R46554.pdf
https://www.epi.org/news/shrinking-labor-force-explains-drop-unemployment/
