A/A* Guarantee

7 Day Money-Back

500+ Grades Boosted

Home > Economics FAQs Blogs > Is it always beneficial for a country to have a low unemployment rate?

Is it always beneficial for a country to have a low unemployment rate?

Relevant Topics

This question pertains to topics in Macroeconomics, such as Unemployment Rate, Inflation, Phillips Curve, Natural Rate of Unemployment


Unemployment Rate: The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labour force.

Natural Rate of Unemployment: This is the rate of unemployment arising from all sources except fluctuations in aggregate demand. It includes frictional and structural unemployment.

Detailed Explanation:

While it might seem that a low unemployment rate is always beneficial for a country, the truth is more nuanced.

In the short term, a low unemployment rate means more people are employed, and thus household incomes and consumer spending are likely to be higher, stimulating economic growth. It also means the government may spend less on unemployment benefits, reducing public expenditure.

However, if the unemployment rate becomes too low (below the natural rate of unemployment), it can lead to inflationary pressures in the economy. This is because with fewer workers available, firms may need to increase wages to attract and retain employees, which can raise production costs and subsequently the prices of goods and services. This is illustrated in the economic model known as the Phillips Curve, which demonstrates an inverse relationship between the unemployment rate and the inflation rate.


Germany in the Late 2010s: Germany experienced record low unemployment rates (as low as 3.1% in Oct 2019 according to Statista). While this boosted consumer spending and tax revenues, there were also reports of wage pressures and skills shortages in some sectors, contributing to inflation.

United States in the 1960s:
The US saw a sharp decrease in the unemployment rate in the 1960s. However, this led to rising inflation as described by the Phillips Curve.


A low unemployment rate is generally beneficial for a country as it leads to higher income and consumer spending, promoting economic growth. However, if the unemployment rate falls below the Natural Rate of Unemployment, it may cause inflationary pressures. Thus, the relationship between unemployment and economic wellbeing is a delicate balance, and policymakers must strive to maintain an optimal level of unemployment that minimises inflation while maximising employment.

Whenever you're ready there is one way I can help you.

If you or your child are looking to Boost your A level Economics Grades in under 30 days, I'd recommend starting with an all-in-one support network where you get 24/7 access to a SuperTutor:

Join EdGenie 🧞‍♂️: Transform your A-Level Economics essays and exam marks (genuinely) with our comprehensive on-demand learning platform. This carefully curated course blends engaging content with effective exam techniques, the same ones that have empowered over 1,000 of my students to achieve an A or A* over the last 13 years. 
Thanks for hopping on board EdGenie's Frequently Asked Questions! 
I'm Emre, and I've got a big goal - to make A* education accessible to all A-level students.
And it Starts With You!

Emre Aksahin
Chief Learning Officer at Edgenie