How the Unemployment Rate Affects Everybody, Even Your Employees…
As of the current moment, millions of Americans are living off of unemployment. The current unemployment rate is at 6.7%, which may be lower than the 8% high a few months ago, but it’s still higher than the beginning of 2020.
For perspective, the unemployment rate in February 2020 was at 3.5%. Yes, the pandemic has made a huge dent in our economy, but what’s more concerning is how this will continue to affect the rest of the workforce, including those employed.
Recent unemployment struggles
Nearly every state in Q3 of this year experienced late unemployment payments. Some benefits or payments have been delayed due to clerical errors, lack of resolve of claims, misplaced paperwork, and other processes or system failures.
Andrew Stettner, a senior fellow at the progressive Century Foundation and co-author of an October report on state unemployment systems stated,
“The inability of states to climb out of the hole of untimely payment is an example of the system failures exposed by Covid-19. The federal government ought to be pressing them to understand their backlog and bottlenecks and coming up with solutions.”
States were first slammed with unemployment benefit applications in March when claims jumped from 282,000 to almost 6.9 million. Additionally, new claims continue to pour in at an unprecedented rate of more than 800,000 a week.
Most of my organization is still employed so how does this affect them?
Unemployment affects everyone. Some of the common negative effects are:
- It adversely effects the disposable income of families
- It erodes purchasing power
- It diminishes employee morale
- It reduces the economy’s output
Though your organization may still be actively working, whether in the office or at home, their spouses, partners, and/or children may still be fired or furloughed.
They may have even just recently been fired or furloughed for the first time as this next wave of the pandemic has caused more recent shutdowns…
Let’s take a closer look at the negative effects unemployment can cause.
Adverse effect on disposable income
According to the U.S. Bureau of Labor Statistics (BLS), when workers are unemployed, their families lose wages.
Not surprising considering half, if not more than half, of a families’ income, could be impacted here. When less money is coming in, the ability to pay bills, shop for groceries, and live in the usual comfort we are accustomed to becomes more difficult.
Additionally, the nation as a whole loses its contribution to the economy in terms of goods or services that could have been produced. This leads to a decrease in purchasing power and thus the ripple effect begins…
Erosion of purchasing power
Purchasing power is the value of a currency expressed in terms of the number of goods or services that one unit of money can buy. When purchasing power decreases, serious negative economic consequences can arise such as:
- Rising costs of goods or services
- Higher costs of living and higher interest rates
- Potentially falling credit scores
This ripple effect can cause even worse issues to develop if left unchecked.
Diminished employee morale
When companies are trying to cut costs, they often look to reduce their workforce first to save money. Due to this, the workers who are left end up with more work, don’t get any compensation, and may even be resentful.
Those employees become more concerned about losing their jobs or be hesitant to search for other employment because they have a false belief that they “are lucky” to be employed at all.
In fact, those employees may even feel guilty about having a job when their co-workers or friends are out of work. Unemployment can have a negative effect on the mental state of those who are still employed.
Reduction of the economy’s output
Not surprising, unemployment is bad for the economy because it means there’s overall less spending. Unemployed workers consume far less than those with a steady income because they have less discretionary income.
In fact, over 70% of what the U.S. economy produces is purchased by domestic consumers through their personal consumption habits. With unemployment higher than normal, this means less income to spend at our favorite community shops…
What can we do?
Offer your employees benefits that actually benefit their entire families. Find out what’s important to them or useful to them so that they can utilize those benefits now.
Especially hit hard right now are employees who make lower-income wages. The national unemployment rate for low-income people rose from 5% to 25% at the height of the pandemic in April. It has been slower to recover than the rate for higher-income people, which grew only from 2% to 5%.
An economist with the St. Louis Federal Reserve, Serdar Birinci, stated,
“Lower-income people, those in professions paying less than $35,000 a year, are less equipped to tolerate delays in benefits.”
On average, a lower-income worker can make ends meet for less than a month without help, while higher-income people have an average cushion of two months between savings and other assets.
Benefits that could help all employees, regardless of lower or higher income positions, include:
- Employee loan programs (probably the most important as it gives your employees access to safe and affordable loans which can be used now for their pressing bills)
- Salary advance programs (in some cases)
- Subsidized legal services
- Mental health coverage
- Wellness programs (this could include an employee loan program, mental health coverage, and physical health programs)
To learn more about our patented financial wellness program with no credit check loans that cost employers nothing to implement and manage, contact us today.