The causes of low and high unemployment rates

As we know, the unemployment rate is the percentage of the labor force that is unemployed, expressed as a percentage. Today, the unemployment is a topical issue because most countries are facing this problem.

There are a lot of European countries which have a high unemployment rate, such as Greece (21.2 %) and Spain (17.1 %). While the Czech Republic (2,9 %) and Germany (3.6 %) are characterized as countries with a low unemployment rate. It is important to emphasize that the unemployment rate has a significant impact on the economies and societies of the countries.

First of all, there are many European countries that face high unemployment rates. Also, there are a lot of reasons, such as mismatch of skills in the labor market. It causes the difficulties in learning new skills applicable to a new industry and can be difficult to find a job in high ranking companies.

In my opinion, one of the reasons for those high rates is voluntary unemployment, which happen when people choose to remain unemployed rather than take the jobs available. They choose to wait until they find a better job. It is an important contribution for a high unemployment rate. Another cause is advances in technology, that is, when computers or robots replace workers. Most of these workers need more training before they can get a new job in their field. To add, another important reason is lack of work places, because it is hard to find a job and people are looking for a job for a long time. Last but not least, when productivity goes down, demand for labor is decreasing. Then, employers need fewer employees.

In addition, there are a lot of reasons why the unemployment rate is low. The first reason can be a well-developed industry. For example, the Czech Republic has a low unemployment rate because this country has a well-developed machinery industry. The production of cars, by companies like Toyota, Peugeot, Citroën, Škoda and Hyundai, is an important thing in the Czech economy. Also, I think the second important reason of a low unemployment rate is a fast growing economy, with plenty of new jobs being created and having high GDP growth rates. If the company has a lot of work places, then a large number of employees are needed.

In my opinion, foreign direct investment reduces the level of unemployment because foreign direct investment enhances private investments, encourage the creation of new jobs, transfers knowledge and technological skills to the labor force and, generally, boosts economic growth in host countries.

To add, another reason is that most of the countries with low unemployment rates have very extensive, accessible, and effective educational infrastructures. For this reason, their youth is more knowledgeable as a result of what they have studied, and ready to apply that information within the job market. Last but not least, there are new job opportunities to the youth. This helps in reducing the numbers of youth unemployed in these countries. This strongly encourages the youth to be employed and begin earning a living earlier.

To sum up, there are many reasons that affect the high and low levels of unemployment. The main causes of high unemployment rate are mismatch of skills in the labor market, voluntary unemployment, advances in technology, lack of work places and decrease in productivity. The main causes of low unemployment rate are well-developed industries, growing economy, foreign investments, effective educational infrastructures and new job opportunities to the youth. All of these causes have an impact on the economies of the countries.

Ieva Meištaitė

[artigo de opinião produzido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3º ano do curso de Economia (1º ciclo) da EEG/UMinho]