Unemployment and Wages

The relationship between unemployment and wages is a leading indicator in investment decisions when determining the economic strength or weakness of a country or jurisdiction.

• In times of high unemployment, the supply of labour is greater than the demand for labour. With more workers available than roles, employers do not need to “bid” for their services and so wages often remain stagnant. This cycle can be self-perpetuating for an economy however, as while demand remains low, this will lead to lower income for workers and therefore lower demand for goods and services.

• In times of low unemployment, the demand for labour exceeds supply and this market environment may create wages inflation; Employers may need to pay higher wages to attract employees who have more options and can be selective in applying for roles.

High unemployment can reduce demand for goods and services which can then reduce the market capitalisation (value) of companies, due to lower profits. This in turn lowers share prices of publicly listed firms.