How Does Unemployment Affect SMEs?

Employment rates are measured closely as an indicator of the health and state of the economy. While high unemployment rates are certainly not a good sign, they don’t necessarily suggest that your small business will struggle.
How Does Unemployment Affect SMEs?

For small businesses there are positives and negatives to both high and low employment rates. Read on to find out the effects of unemployment on a business and what you can do about them.

A history of UK unemployment

Employment records were first started in 1971. Unemployment rates are calculated every three months and are based on a sample size of 53,000 households. It’s classed as an individual who is out of work, is looking for work, and is available for work.

Employment rates are often a consequence of a fluctuating economy. In a flourishing and positive economy, unemployment rates are low and are high in economic turmoil.

So what are the effects of unemployment on a business?

Advantages of unemployment for businesses

Unemployment rates have an unusual impact on small businesses. There are advantages and disadvantages to both ends of the employment spectrum.

When unemployment rates are low, it means that more consumers have money to spend and the demand for your goods or services may increase. This is inherently good for your business as it should result in a healthy profit margin.

Low unemployment rates are also an indicator of a healthy economy. This can have a positive impact on the wellbeing of workers who will feel an increased sense of job security and will hopefully feel motivated.

High unemployment rates provides you with a bigger pool of potential employees. This also means your salaries don’t have to be as competitive to either recruit new staff or retain current staff. However if you want to retain the best talent, you should offer a competitive salary as standard because the most talented employees will help your business grow.

Rising unemployment rates could also result in lower turnover of staff as there are fewer jobs available. This in turn means your recruitment costs are lower and you can invest more money in your staff.

The impact of unemployment on business

For all the above advantages, the opposite is also true. High unemployment rates indicate consumers are less inclined and able to spend money, your employees may be worried and the economy may be struggling. Low unemployment rates also suggest turnover may be high, keeping and finding the best staff could be expensive which can push up inflation and increase costs from suppliers.

It’s good to be aware of the challenges that different rates of employment pose. But ultimately, low unemployment rates are good for business. It’s one indicator of a good economy and a good economy means that your business has a strong chance of succeeding and thriving.

You can find out about the UK’s current unemployment rate on the Office of National Statistic’s website.

How can Esme help?

If you’re looking to secure finance to invest in your business, get an instant quote with Esme or try our business loan calculator.