There are many costs of unemployment. High unemployment in a particular country will bring costs to both the society as a whole and be a personal cost to all of the individuals who are affected by it.
Therefore, understanding the concept of unemployment and its negative effects on the country’s economy as well as each and every citizen is of the utmost importance.
Why unemployment matters?
If there is unemployment, then, there will be:
- Lower economic output. Unemployed people stay idle. They do not produce any goods nor provide any services. Because of that, the country’s Gross Domestic Product (GDP) is not as high as it could have been, if every person in the country contributed towards the country’s economy. So, the output of the country will be lower than it could have been. The country’s labor force could have been producing more goods and providing more services, which would then be available for consumption in that country, or ready for export to other countries.
- Poor competitiveness of the whole country. One of the government’s economic objectives is to keep unemployment in the country low. In this way, the government can maintain and improve the country’s economic status. With high unemployment, many people are jobless not producing any new products that could have been be traded with other countries to increase wealth of the citizens. If there is a deficit of products in a country because nobody had produced those products, the imports from other countries might increase to fulfill the demand. In this way, companies in other countries will gain from increased sales.
- Loss of income and lower living standards. In the long-term, high unemployment significantly reduces demand for goods and services. It happens because unemployed people receive no regular income. This will result in low consumer spending of the general population which poses serious threats to business growth. Without selling more products than in previous years, companies cannot grow in size.
- High social security costs. Many governments around the world pay unemployment benefits to people without jobs, for example European countries where social benefits are one of the best in the world. So, paying social security benefits to many unemployed people will cost the governments money which could have been spent otherwise, for example on constructing new public schools and public hospitals, or renovating the current ones. The cost to the country’s budget of supporting unemployed workers and their families is substantial, and is paid for out of general TAXation.
- Growing social problems. High unemployment lasting for a long period of time usually leads to increase in social problems which is a cost to the society, such as the problem of crime, addictions problems such as nicotine, alcohol and drugs, the problem of vandalism, housing problems such as homelessness, the problem of hunger, etc. If any of those problems exist in a country and are not being solved in a timely manner, then, they may pose a threat to the stability of the country, and sustainable healthy growth of the economy in the future.
- Low self-esteem among unemployed. The longer the period of unemployment, the more difficult it is to find work for jobless people because their knowledge and skills become increasingly out of date. Therefore, their attractiveness on the job market is decreasing. The unemployed part of the population reports a significant negative effect on their ability to achieve their future career goals.
Example 1: According to a Pew Research Survey, 38% of the long-term unemployed have lost self-respect. Almost 30% said their new job was worse than their old one. Sadly, 43% said they would have a hard time achieving their career goals.
- Poor health of the citizens. In the short-term, the unemployed may experience strained family relationships. While in the long-term, unemployment can cause development of serious health conditions, such as anxiety, depression or suicidal tendencies which treatment will strain public health system. Although, the situation when a worker loses the job is associated with health declines, the effect of long-term unemployment will need to be studied further.
- High market power of employers. During periods of high unemployment, businesses may have a lot of power over the unemployed. It gives the companies the ability to negotiate lower wages or lower wage increases. While on one hand this might be seen as the natural play between the supply and demand, on the other, this may be perceived by the society as forceful exploitation of the workforce by greedy employers. The employer-employee relationship may deteriorate.
Unemployment is definitely a waste of human resources. The costs of this to the country and the society are significant, therefore the government will propose several ideas to tackle unemployment. So, as many people as possible can have jobs.
