by Stephan Smith on February 14, 2011

If you aren’t sure what the term ‘employee‘ means and you want an explanation, then continue to read the contents of this page. On this page I will be explaining what an ‘employee’ is and how it helps an economy grow. Chances are, if you have bills and you are in need of an income, then there is a good probability that you are an employee to some employer. Being an employee is the most popular way to earn money in many economies. But just what is an employee; what does it mean? Let’s dive right in and make sure you are ready to learn.

What is an Employee?

An employee is an individual that is contracted and hired to work labor given by an employer. An employer provides the labor for an employee to work on. If a business, who is typically an employer, wants to sell wood and needs trees to be cut down for processing, then that business would get some workers to cut down trees. Those workers would be considered employees if they get contracted and hired to work for the business.

Now lets break this down. Who are the workers? They are the individuals. What is the business? The business is the employer. What the did the business do to individuals? It hired the individuals. What did the business hire the individuals to do? The business hired the individuals to cut down trees, which is labor. So by the definition I gave earlier, those individuals, those workers, are employees.

One thing that I don’t want you to get wrong is for you to get the impression that labor only involves physically intensive work. That is not the case. Labor can be anything. Labor can be typing on a computer, cleaning houses, talking, watching, listening, smelling, anything. Consider this; let’s say that a company needs to perform quality control for its perfumes.

That means the company needs to get workers to smell perfumes to ensure consistency. See? That example was a case where smelling perfumes was the labor and the workers the company would hire would be the employees. So whatever you do, don’t assume that labor is only physically intensive.

You may be wondering what I meant when I said an employee is contracted and hired to work for an employer. Just what do I mean by ‘contracted’? What do I mean by ‘hired’? Really, the terms can be used somewhat interchangeably. Usually, companies who have decided to contract/hire an employee have the ‘soon to be employee’ sign a variety of documents. Most of the time, those documents are legally binding and is a written promise that the ‘soon to be employee’ will do the job he or she is given to do.

Because the ‘soon to be employee’ is filling out contracts, that ‘soon to be employee’ is under contract to work the labor given by the employer. Once contracted that ‘soon to be employer’ is now employed and is hired. ‘Hired’ is just a term used to signify the status of being employed. ‘Fired’ is a term used to signify the status of losing employment (or lost employment).

Why are Employees Important for an Economy?

Here’s the simple answer. Employees are important for an economy because employees earn money from their employers and then spend money on goods and services offered in an economy. Understand? Well, just encase you don’t, let’s get into more detail.

Employee getting paid by employer

Here is an employee getting paid by his employer. When the employee gets his money, he will spend it on goods and services which in turn will help the economy grow.

If there aren’t any employment opportunities in an economy, then a majority of individuals won’t be making any money. Remember when I said that being an employee for an employer (that is not yourself) is the most popular way in many economies to earn money? So, if there aren’t any employment opportunities available, then few people will have money to spend of various goods and services.

What does that do to an economy? Lack of sales of goods and services prevents companies offering the goods and services, from contracting and hiring more individuals. If sales are really low, then companies will even fire the employees it has because of the lack of revenue coming in. If companies decide that course of action is the most appropriate, then more individuals will be unemployed, and more individuals will have less money to spend.

As a result, even less goods and services will be sold and more employees will have to be fired until the economy implodes. Usually, the economy’s central bank intervenes so that doesn’t happen. The central bank will implement expansionary monetary polices to help boost the economy.

When employment opportunities are available in an economy, then the inverse occurs. More people will have money to spend on goods and services and as a result, companies will generate sustaining revenue. Once all of a company’s resources are being utilized and that company wants to expand, then it may do so by hiring additional employees. Once additional employees are hired, now more individuals will have money to spend on goods and services. You see, as more and more individuals become employees, more individuals become consumers as well. As new consumers enter an economy, sales of goods and services will continue to increase, companies will continue to expand and the economy will continue to grow.

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