Unemployment Causes and Consequences

Updated September 18, 2019
Woman in line at unemployment office

Understanding unemployment causes and consequences reveals how serious a problem job loss can be for the individuals who are affected and their families. Unemployment affects society, entire communities and nations. Knowing the cause can provide data that can be used to remedy certain types of unemployment.

Job Performance Issues

An employee terminated due to poor job performance sounds conclusive that the employee failed to meet specific job requirements. However, there are many reasons an employee has a poor performance record. Employers and terminated employees can learn from these issues and use the information to prevent such issues from recurring in the future.

Employer reprimanding employee in office

Lack of Job Skills

The issue of poor job performance due to a lack of job skills may be a red flag that a poor hiring choice was made. It could mean that the employer didn't offer adequate or any training to the employee. It could be the employee was provided proper training but didn't have an aptitude for the job or advancement in a job that required new skills. Other reasons include:

  • Mismatch between available workers and positions to be filled
  • Excess of workers versus available positions
  • Open jobs not filled due to lack of skilled workers

A survey conducted by Robert Half Finance & Accounting survey revealed several performance issues. The survey indicated 36% of employee performance issues was due to poor skills match with the job.

Lack of Experience

Unemployment rates among young people tend to be higher than other segments of the population. The lack of experience makes it more difficult for young people to find jobs. It becomes a Catch 22 - they can't gain the practical experience they need unless they can find someone willing to hire them. If employers require specific skills or experience for specific jobs, there are many solutions available, such as on-the-job training, an employer sponsored apprenticeship program and other various forms of training/education.

Poor Attitude and Behavioral Issues

Another poor performance issue is an employee habitually tardy or absent, poor attitude or other behavioral issues. This type of performance issues can range from personality conflicts with coworkers or management. The same Robert Half survey attributed 17% of poor performance issues was due to personality conflicts. This type of employee may have difficulties in future jobs unless an attitude adjustment is made.

Woman with bad attitude

Poorly Defined Job Expectations

A common job performance issue is the employee's lack of understanding of the job duties. The employer hasn't clearly defined and communicated with the employee what the job performance expectations are. The Robert Half survey revealed a surprising 30% of poor job performances were due to the employer's expectations not being clear to the employee. Robert Half advises that jobs often evolve beyond the last official job description and hiring managers need to convey this information to avoid these issues.

Consequences of Poor Job Performance for Employees

The consequences of poor job performance due to various reasons, such as job skills, experience, attitude and job expectations, can affect employees with immediate or delayed terminations. Another danger for poor job performers is a company layoff. When a company must layoff employees, those with poor job performances are usually the first to be laidoff.

Company Layoffs

There are two types of common layoffs. One is seasonal layoffs, and the other is permanent layoffs. There are many reasons why a company may resort to layoffs.

Stressed man on phone hearing bad news.

Temporary Layoffs

There are several reasons for a temporary layoff. This can be a seasonal layoff due to an annual slow down in the industry. An employee on a temporary layoff from work and waiting to be called back to work can be considered unemployed. In most of these cases, the employee draws unemployment.

Company Downsizing

The most common reason for layoffs is downsizing. A company downsizes as a way to cut costs. The reasons why a company may need to cut costs can include competition, loss of sales, shortages, and various economic factors.

Voluntary Layoff Incentives for Employees

In some situations when a company needs to cut costs and downsize, employees may be offered an incentive to take early retirement. These monetary payments may be welcomed for employees contemplating retirement or near retirement.

Restructuring of Business Model

Due to competition, new technologies, economics, market demands, or change in direction, a company may need to restructure their business model. This often changes jobs needed to implement necessary changes. That means some job may be eliminated, resulting in employee layoffs.

Company Merger or Acquisition

Companies involved in a merger or acquisition typically must layoff employees in order to consolidate the businesses into one. These scenarios also present issues of redundant positions that make it more cost effective to consolidate two similar or identical positions into one.

Company Closing

Some companies may decide to stop operation and close down the business. This is a drastic measure and can be for many reasons, such as no longer able to compete in the marketplace, supplier issues, business mismanagement, natural disaster, or other cause.

Consequences of Layoffs for Employees

There are many negative consequences of layoffs. The employees laid off must find another job and typically will go through the Employment Security Commission to sign up for unemployment benefits. The employee's morale can suffer, and they might not be able to find a similar job or one that pays comparable to their old job. This creates financial, emotional and psychological hardships.

Stressed woman at her desk

Personal Impact of Job Loss

The National Institutes of Health reports that US Unemployment rates between 2009 and 2011 were between 9% and 10%, the highest it had been since the early 1980s. The effects of job loss for workers includes psychological distress as well as physical stress. Workers often undergo a reassessment of their personal worth, values and place in society. Their relationships with family and peers undergo changes that aren't always positive.

Consequences of Layoffs for Employers

The employer's reputation can suffer, and they may have a difficult time attracting new employees, fearful of further layoffs. The morale of the remaining employees typically decreases. According to Harvard Law Review, survivors of a recent layoff will suffer from a 20% job performance decline. Another report by Harvard Business School's Teresa Amabile reveals a 24% decline in new inventions for a company that laid off 15% of its employees.

logistic network distribution of goods

Further Impacts of Layoff on Voluntary Turnover

A study conducted by Charlie O. Trevor and Anthony J. Nyberg of the University of Wisconsin-Madison concluded, "For example, our marginal effects analysis predicts, for an average company, a 31% increase in post downsizing voluntary turnover rates even if downsizing is just .01 of the workforce." In addition, the analysis also predicts if a company doesn't have good business practices and is unable to convey to survivor employees that downsizing is beneficial, the company can expect 112% of remaining employees to quit.

Quit Behavior

Another consequence of layoffs is the development of quit behavior in workers. The Wisconsin School of Business at the University of Wisconsin-Madison published a study where researchers found the earnings of those laid off were less over their lifetimes, their work attitudes suffered as did their physical and mental health.

Post-Layoff Voluntary Turnover

Voluntary turnover is a direct post-layoff reaction for these employees. Researchers found the weakened connection to their new employers due to their layoff. Defined in the study as quit behavior, these employees failed to establish loyalty or commitment to their next employer.

  • The study concluded that after their first layoff, 56% were likely to quit any job.
  • If those first-time layoff employees went to work for a company that had a layoff, 65% of them were likely to quit their jobs immediately.
  • The researchers concluded that institutionalized downsizing could potentially have "highly consequential effects" on the American workforce stability.

Global Consequences of Unemployment

The Harvard Law Review also reports on steps some European governments have taken to minimize voluntary turnover due to layoffs. These countries established laws to protect employees from layoffs by requiring employers to justify the economic and/or social reasons necessitating the layoffs.

High Unemployment Consequences

Global Finance reports "high unemployment rates threaten growth and social cohesion." With a rise in unemployment, individuals lose income and governments suffer from a decrease in collected taxes.

Weakening Societal Effects

Beyond the expected effects of unemployment, social structures break down over prolonged periods of unemployment. The psyche of society suffers negatively, with a weakened faith in government and industry.

Worldwide Unemployment Rate

Global Finance reports that in 2009, the world unemployment rate rose to 5.9% as a result of the 2008 worldwide financial crisis. It wasn't until 2014 the unemployment rate leveled out to 5.5%.

United States Lowest Unemployment in 50 Years

According to the Bureau of Labor Statistics, the growing economic strength of the United States of America continues to produce more jobs and has lowered the unemployment rate. In 2018, the unemployment rate dropped from the August rate of 3.9 to 3.7 in September 2018, the lowest unemployment rate in 50 years. In July 2019, the unemployment rate was also at 3.7%.

Examining Unemployment Causes and Consequences

The causes and consequences of unemployment is complex and often difficult to analyze without considering all contributing factors. The impact on both employees and employers can be long term and have unforseen detrimental consequences.

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Unemployment Causes and Consequences