If an economy is experiencing growth, it is an excellent opportunity for firms to take advantages by expanding and increase revenue. On the other, negative growth means firms will cut back on expenses resulting in loss of jobs. If growth rises significantly above or below the trend rate of 2.5%, the economy is experiencing excessive growth or low growth. If the rate becomes negative for at least 2 quarters in succession, the economy is in recession.
The graph below shows UK’s GDP trend from 2004-2013. The first quarter of 2008, GDP peaked at 2.8% which is just over ￡390mil and in the first and second quarter of 2009, GDP plummet to approximately 0.9% which is just under ￡370mil
Source: ONS
Unemployment
Unemployment is viewed as loss of income for government and waste of resources. When people are unemployed it creates poverty which triggers additional problems example increase in thefts which government will have to deal with in the future. High employment is an economic indicator of good performance. Countries which are fast growing, example Japan, tends to have low level of unemployment. The logic behind this is that, because the economy is expanding more people are needed to produce goods and services.
Over the year, industries have moved from labour intensive to capital intensive. Technologies have replaced human workers. The ones that are made redundant are added to the list of growing unemployment which will possibly push the economy into recession. To avoid this government will have to create jobs to balance the impact. The rate of which jobs are created is linked to the level of employment therefore job creation is considered an economic performance.
The effect of unemployment on businesses is that if people are not earning an income they are unlikely to spend which means businesses would see a fall in demand of goods and services therefore loss of revenue and profits, reduction in wages, and not taking on new staff.
High level of employment means government will have to increase spending on social welfare example JSA and housing benefits. Firms may have to reduce output due to fall in demand which could lead high restructuring cost.
International Labour Organisation (ILO) definition defines unemployment as those without a job but who are seeking work at current wage rates (ILO, 2014). The UK however uses two methods to calculate the rate of unemployment. The Labour Force Survey (LFS) and Claimant Count. The LFS was designed by the ILO and the UK government uses it to generate unemployment statistics while the claimant count statistics is based on the numbers claiming benefits for being unemployed. It is generally recognised that the Claimant Count under-estimates actual unemployment levels.
The UK has not got a set figure as part of their employment objectives policy. The current objective is to achieve full employment
