Costs Of Unemployment
economists agree that high levels of unemployment are costly not only to the
individuals and families directly affected, but also to local and regional
economies and the economy as a whole. We can make a distinction between the economic
costs arising from people out of work and the social costs that often result.
Of Goods And Services
causes a waste of scarce economic resources and reduces the long run growth
potential of the economy. An economy with high unemployment is producing
within its production possibility frontier. The hours that the unemployed do
not work can never be recovered.
if unemployment can be reduced, total national output can rise leading to an
improvement in economic welfare.
Costs To The Government
unemployment has an impact on government expenditure, taxation and the level
for government borrowing each year
An increase in unemployment
results in higher benefit payments and lower tax revenues. When individuals
are unemployed, not only do they receive benefits but also pay no income tax.
As they are spending less they
contribute less to the government in indirect taxes.
This rise in government
spending along with the fall in tax revenues may result in a higher
government borrowing requirement (known as a public sector net cash
Loss Of Investment In Human Capital
wastes some of the scarce resources used in training workers. Furthermore, workers who
are unemployed for long periods become de-skilled
as their skills become increasingly dated in a rapidly changing job market.
This reduces their chances of gaining employment in the future, which in turn
increases the economic burden on government and society.
Social Costs Of Unemployment
unemployment is linked to social and economic deprivation - there is some relationship between
rising unemployment and rising crime and worsening social dislocation
(increased divorce, worsening health and lower life expectancy).
of high unemployment will also see a decline in real
income and spending together with a rising scale of income inequality. As younger workers are more geographically mobile
than older employees, there is a risk that areas with above average
unemployment will suffer from an ageing potential workforce - making them
less attractive as investment locations for new businesses.
duration of unemployment affects the economic and social costs.
It is clear therefore that
unemployment carries substantial economic and social costs.
These costs are greatest when long-term structural unemployment is high.
Indeed many government focus their labour market policies on improving the
employment prospects of the long-term unemployed.