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Effect of Low Unemployment on Multinational Companies

Question

Singapore is usually ranked as one of the best countries in which to do business. It is an open economy engaging in free trade. It has a history of strong entrepreneurship, low unemployment, low average costs and relatively low tax rates. Its example may encourage other countries to remove trade restrictions.

Discuss whether low unemployment in a country will encourage multinational companies (MNCs) to set up there. [8]

Category:

Unemployment

[CIE O level November 2017]

Preview Answer


Step 1 : Define ‘the level of unemployment’ and ‘multinational company’ in the introduction.

A multinational company (MNC) is a business that has operations in more than one country. The level of employment can influence the decision of an MNC to set up in a country. Low unemployment in a country may or may not encourage an MNC to set up there.


Step 2 : Explain why low unemployment in a country will encourage multinational companies (MNCs) to set up there.

MNCs might be encouraged to set up in a country with low unemployment for several reasons:

➤ 2.1 Low unemployment may indicate a strong economy

Low unemployment means that there will be economic growth and a high level of demand in the country. When people have money to spend, they support businesses such as MNCs. Consumer spending impacts the majority of economic growth. During a strong economic cycle, low unemployment essentially feeds itself. Businesses such as MNCs will benefit as consumers have money to spend. MNCs may expect to be able to sell a large amount in the country and make a higher profit. Low unemployment signals that companies have confidence in marketplace demand in the near future.

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