Unemployment occurs when a person wanting to work and actively seeking employment is unable to find a job.
Governments have established policies to try to control their economies, with the goal of furthering economic growth and minimizing the hardship of a recession. Rising unemployment is the most painful consequence of a recession. The unemployed are people who are not currently employed but are actively seeking a job. Long-term unemployment can result in difficult challenges, including the forced sale of a home, delaying needed health care, and possibly going hungry.
The discouraged worker’s self-esteem can also suffer. Crime often increases during recessions as desperate people do desperate things. Higher unemployment costs governments in many ways. They lose tax revenues and pay more in social programs such as Medicaid and unemployment insurance.
Fiscal and monetary policies are used to stimulate the economy to reduce unemployment. Supply-side economists believe the best economic policy focuses on increasing the aggregate supply by providing tax incentives and investment to promote business development. By increasing the long-run aggregate supply, the economy can experience growth and a drop in unemployment without adding inflationary pressures. When tax rates are decreased, entrepreneurs are more willing to take risks. New technologies are more likely to be developed. Productivity increases.
Government spending may also reduce unemployment. Companies hired by the government to build roads, produce weapons, and teach may need to hire additional workers to provide the good or service. The added income is spent on goods and services which promotes growth among the companies not directly hired by the government.