Unemployment, Poverty, and Income Inequality

Table of contents

Economic indicators are pieces of economic data, usually on a macroeconomic level, that help analyze an economy’s well-being. All economic indicators impact not only the economy, but the individuals in the society as well. These indicators may cause decreases in economic growth, negative effects on physical health, and negative effects on mental health. Researching and studying these effects can greatly impact the economy of a nation. Understanding causes and effects of issues helps an economy and society improve and reach prosperity. This research paper will be analyzing the effects of three economic indicators; unemployment, poverty, and income inequality on the economy and the individuals living in a society.


According to Lawrence H. Summers, president of Harvard University and chief economist at the World Bank, unemployment refers to a person that is out of work and actively seeking employment. Unemployment, Summers says, could be long-term or short-term and that depends on the reason behind the unemployment (Summers). Unemployment affects many aspects of the economy and a person’s life.

Economic growth is greatly affected by the unemployment rates of a nation. It has a great effect on a state’s federal budget. The aspect that unemployment has the greatest impact on is a country’s potential output. Potential output is a measure of the economy’s capability to produce goods and services when fully utilizing their resources, or in this case labor force (Levine 1).The higher the rate of unemployment the less the potential output is, as there are less working hands in the market.

Another of unemployment on the economy is it makes unemployed workers have a higher chance of leaving the labor force permanently, which will in return harm the economy further more. Unemployment also affects individuals’ physical and mental health. A study done to assess the impact of stress on health compared two groups of men; unemployed and employed. Symptoms of anxiety and depression were significantly higher in the unemployed than the employed (Linn 502).

Employment has a proportional relationship with mental health. When one declines the other does so as well. That could be simply explained by saying that economic stress increases anxiety, and the decline of an individual in the social hierarchy would definitely increase feelings of depression (Nichols 9).


Poverty, in an absolute definition, is having less than a defined minimum (Hagenaars 212). This defined minimum differs from one economy to the other. All aspects of an economy’s well-being are all connected. For that reason, poverty affects the economy negatively, but somehow indirectly. Poverty affects employment opportunities and income growth, which in return impacts a nation’s economy (Grunewald).

Another impact could also come from children living in poverty. These children will increase poverty rates in the future, and that is because it is shown that children living in poverty are more likely to have low income as adults than children that have a good standard of living (Holzer 9). Poverty also has great effects on an individual’s role in society. Being poor brings about discrimination, as a person would be excluded by other members of society, in terms of activities or even job opportunities. (Mood).

That would in return affect the individual’s self-esteem and might even cause feelings of depression and more psychological issues. Poverty could also have short-term effects like hunger, illnesses, and thirst. These effects are demonstrated significantly by African countries like, Liberia, Ethiopia, and Democratic Republic of Congo.

Income Inequality

Income inequality refers to when different people in an economy earn different amounts of money. Whether income inequality is considered good or bad depends on how it serves the interests of the less fortunate. For example, if paying doctors and dentists more encourages more people to study medicine and cure the sick, then that is good and would of course benefit the economy. On the other hand, it is negative as it is a sign of deprivation of an opportunity to increase one’s living standards. One of the main effects of income inequality on the economy is on the long-run it causes a decrease in the GDP per capita (Brueckner).

Another effect of income inequality would be it reducing the economic growth of a nation or state. This decline in growth would be the result of demotivation that leads to less effort, feeling like effort is not worth it, and lack of investment in education. Other effects would be increase in social tension; increased strike days, increased property crimes, and more protests. History has witnessed many of these protests as a result of income inequality. For example, Occupy Wall Street movement in the US, where people started a protest about how poor and rich people earn and are treated differently.

These social tensions will not only cause political conflict, but will lead to a decline in investment (Berg 5). The main cause of income inequality on one’s health is that it’s harmful in the fact that it places people in a hierarchy and that increases competition for resources, which will result in poor health.

Another effect would be how income inequality leads to social problems. That is caused because it results in a decline in self-esteem and makes people feel like they are worthless. Feeling of worthlessness and like you are discriminated against could lead to incriminating behavior like stealing and drug use. It could also lead to psychological issues like depression and chronic stress. And in return these psychological issues will lead to a decline in immunity and cardiovascular strength (Wilkinson 721).


In conclusion, all of the previous economic indicators may have negative effects on the economy and the individuals, but analyzing them helps economists identify problems. These problems will help them improve and cure sick societies. Decreases in economic growth and the production of goods and services are main effects of all three indicators on an economy.

Moreover, stress, depression, and anxiety are the most prominent psychological and health effects that these indicators have on individuals suffering of them. The understanding of these factors and there effects will then reinforce the importance of economics on the world. The study of economics is a way to understand people, businesses, and markets, and in return better respond to the threats and opportunities that emerge in a changing economy.

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