Question

Briefly discuss the employment problem with respect to economic growth and development.

Answer 1

The problem of unemployment in the economy is related to the problem of economic growth and development. When the economy is in recession and economic growth in the nation is decreasing, the real GDp is below the full employment level of GDP in the economy and there is recessionary gap in the economy. During recession, aggregate demand in the economy decreases, this also reduces demad for labor as overall production in the economy decreases. As demand for labor decreases, the problem of cyclical unemployment is seen in the labor market and overall rate of unemployment in the economy increases.

On the other hand, when the economy is booming, Real GDP in the economy is above the full employment level in the economy. This leads to increase in aggregate demand and production in the economy which increases demand for labor and this reduces unemployment in the economy. The cyclical unemployment decreases. Thus, as economic growth increases unemployment decreases in the economy.

Thus, during the time of economic growth unemployment decreases and during the time of recession, unemployment increases.