Sample Literature Review Paper on The Role of Unemployment in Today's Economy

Many perceive unemployment as an undesirable phenomenon and consider full
employment an ultimate economic goal. However, a moderate unemployment level ensures that
the economy blossoms and the efficient use of economic resources for maximum production.
Although keeping the unemployment rate low is a desirable objective, countries need careful
examination as unemployment plays an essential role in economic stability and growth.
Reducing the unemployment level below the natural unemployment rate increases the
rate of inflation. According to the Phillips Curve, there is a trade-off between the inflation rate
and unemployment rate such that reducing the unemployment rate leads to an increased inflation
rate and vice versa (Nunley et al. 645). it infers that unemployment plays a critical role in
capturing rising inflation in an economy. Stationary aggregate supply curves raise the aggregate
demand which in effect results in increased real output. The Phillips Curve illustrates a negative
correlation between unemployment and inflation. The economy needs some unemployment level
to remain stable and control the inflation rates as wages remain critical components of pricing
Secondly, achieving full employment is counterproductive for an economy. Successful
government policies that create more jobs than workers lead to over-full employment and
consequently, shortage of labor in a country (Bivens and Zipperer). The employees in such a

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country may demand higher salaries and other benefits to the detriment of the industries. The
cost of production in such an economy rises above its peers making its exports remain
uncompetitive due to the high prices charged. The current economies thrive on exporting excess
production without which, the economic growth will stall. Increased production costs indicate
that an economy is not efficient since it can transfer the resources to other productive areas.
Despite the objective to attain full employment being noble, careful considerations are
required as unemployment helps keep the economy in check. Full employment may lead the
country an unsustainable growth, in the long run, owing to labor shortages and wage inflation.

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Bivens, Josh, and Zipperer, Ben. “The importance of locking in full employment for the long
haul.” Economic Policy Institute, 21 Aug. 2018,
importance-of-locking-in-full-employment-for-the-long-haul/. Accessed 7 November
Nunley, John M., et al. “The Effects of Unemployment and Underemployment on Employment
Opportunities: Results from a Correspondence Audit of the Labor Market for College
Graduates.” ILR Review, vol. 70, no. 3, May 2017, pp. 642–669,