Unemployment Risk with Business Opportunity

Unemployment Risk with Business Opportunity


High unemployment may make labor more docile and reduce business costs, they also reduce the demand for business output. Thus, while costs may fall, profits don't necessarily rise because sales don't increase since potential consumers have no money to spend due to high 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)

Some business implications of falling / low unemployment include:
• 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 the ability to increase capacity
• Greater sense of job security and motivation in the workforce if the business is doing well.