It’s no secret that employment is a key component of economic growth. When people have jobs, they have money to spend on goods and services, which helps businesses grow and create more jobs.
Countries with low unemployment rates will always be more economically viable than those with high unemployment rates.
In this blog post, we’ll explore the relationship between employment and economic growth and discuss why it is essential for policymakers to focus on creating jobs.
The Link Between Unemployment & Economic Growth
Numerous studies have found a strong correlation between unemployment and economic growth.
For example, a study by the European Commission found that a one percentage point increase in the unemployment rate leads to a 0.42 percentage point decrease in GDP growth.
While the relationship between employment and economic growth is complex, several theories explain how jobs impact economic growth.
The most popular theory is the Keynesian multiplier theory, named after British economist John Maynard Keynes.
This theory states that when people are employed, they will have money to spend on goods and services, which will spur businesses to grow and create more jobs.
Another theory is called the human capital theory, which theorises that businesses should invest in their employees the same way they invest in their equipment and supplies.
For example, a business will spend a lot of money on software and equipment to ensure smooth operations. So, they should also invest in training and development opportunities for the employees.
When a person is unemployed, it can lead to feelings of insignificance, low self-esteem, and a lack of motivation and impact on the economy.
Policymakers should focus on creating jobs because employment isn’t just crucial for economic growth; it also improves the well-being of citizens.
Unemployment can lead to financial instability, mental health problems, and social isolation.
Jobs Give People Purchasing Confidence
One of the most critical roles of employment is providing people with an income. This income gives people the confidence to buy goods and services, which helps businesses grow and create more jobs.
Income also allows people to save money, which can be used for investments, such as starting a business, buying a house, or financing other ventures that will help boost economic growth.
Jobs Create A Virtuous Circle Of Economic Growth
When businesses are doing well and creating jobs, this has a positive effect on the economy. As companies expand and make more profit, they pay taxes which help fund public services and infrastructure.
This makes the country a more attractive place to invest, leading to even more economic growth. The government can also use taxes from businesses to invest in education and training, which will make the workforce more productive and create even more jobs.
