Comment on the Impact of Negative Growth on Unemployment in Countries Such as Those in the Caribbean

Topics: Economics, Unemployment, Tax Pages: 2 (446 words) Published: February 25, 2011
Comment on the impact of negative growth on unemployment in countries such as those in the Caribbean [10]

Unemployment arises when someone is out of work and actively seeking employment. Comparisons of unemployment internationally use a standardised measure of unemployment found a survery of the labour force. The recent global economic crisis has had a big impact on unemployment throughout the world. The Caribbean economies, in particular, have seen a sharp rise in unemployment and an increase in poverty due to this decline in economic activity. The Caribbean economies were hit hard by a 30% decline in revenue from tourism, a fall in remittances, the cancellation of many large scale construction projects and the collapse of commodity prices. Recessions always lead to a reduction in employment and an increase in cyclical unemployment which leaves an economy with a higher amount of spare capacity and operating well within their production possibility frontier.

This reduction in the total output of the economy effects the potential long run growth of a country. Unemployment has economic and social costs for each coutry affected. High unemployment has an impact on government expenditure, taxation and the level of government borrowing each year. An increase in unemployment results in higher benefit payments and lower tax revenues. When individuals are unemployed, not only do they receive benefits but also pay no income tax. As they are spending less they contribute less to the government in indirect taxes. This rise in government spending along with the fall in tax revenues may result in a higher government borrowing requirement. In the Caribbean, government debt has already been high but in addition to the increase in unemployment, in many economies it has risen to over 100% of GDP. For example, in St Kitts, government debt is 182% of GDP. These high levels of debt pose a threat to fiscal stability and to future economic development in the region.

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