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Affect of Unemployment in Economy Essay

Unemployment (or joblessness) occurs when people are without work and actively seeking work. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. During periods of recession, an economy usually experiences a relatively high unemployment rate.[2] According to International Labour Organization report, more than 197 million people globally are out of work or 6% of the world’s workforce were without a job in 2012.

There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment. Classical economics, New classical economics, and the Austrian School of economics argue that market mechanisms are reliable means of resolving unemployment. These theories argue against interventions imposed on the labor market from the outside, such as unionization, bureaucratic work rules, minimum wage laws, taxes, and other regulations that they claim discourage the hiring of workers.

How does unemployment affect the economy? Some of the well-known effects of unemployment on the economy are: Unemployment financial costs The government and the nation suffer. In many countries the government has to pay the unemployed some benefits. The greater the number of the unemployed or the longer they are without work the more money the government has to shell out. Therefore, the nation not only has to deal with the lost income and decreased production but also with additional cost. Spending power

The spending power of an unemployed person and his/her family decreases drastically and they would rather save than spend their money, which in turn affects the economy adversely. Reduced spending power of the employed

Increased taxes and the insecurity about their own work may affect the spending power of the working people as well and they too may start to spend less than before thus affecting the economy and also the society in a negative manner. Recession

With the increase rates of unemployment other economy factors are significantly affected, such as: the income per person, health costs, quality of health-care, standard of leaving and poverty. All these affect not just the economy but the entire systems and the society in general. Here are some aspects of the impact of unemployment on our society: The effect of unemployment on our society

Unemployment affects not just the person himself but also his/her family and in the long run the society where he lives. Unemployment brings with it despair, unhappiness and anguish. It forces people to live their lives in a way they do not wish to – The life expectancy is negatively affected. Life expectancy is the ease by which people living in a time/place are able to satisfy their needs/wants. Here are the main aspects:

1. Mental health: Mental health problems like: Law self-confidence, feeling unworthy, depression and hopelessness. With the lost income and the frustration involved in it, the recently unemployed may develop negative attitudes toward common things in life and may feel that all sense of purpose is lost. Frequent emotions could be – low self-esteem, inadequateness and feeling dejected and hopeless. 2. Health diseases: The unemployment overall tension can increase dramatically general health issues of individuals.

3. Tension at home: Quarrels and arguments at home front which may lead to tension and increased numbers of divorces etc. 4. Political issues: Loss of trust in administration and the government which may lead to political instability 5. Tension over taxes rise: Unemployment also brings up discontent and frustration amongst the tax paying citizens. In order to meet the demands of the unemployment fund the government many a times may have to increase the taxes thus giving way to restlessness amongst the tax paying citizens. 6. Insecurity amongst employees: The prevailing unemployment and the plight of the unemployed people and their families may create fear and insecurity even in the currently employed people. 7. Crime and violence: Increase in the rate of crime.

8. Suicide cases: Increase in the rate of suicide attempts and actual suicides as well. 9. Social outing: Unemployment may bring a decrease in social outings and interactions with other people, including friends. 10. Stigma: Unemployment brings with more than just ‘no work’. It also brings with it the disgrace that the person has to bear. Nobody likes to be termed as unemployed.

11. Standard of leaving: In times of unemployment the competition for jobs and the negotiation power of the individual decreases and thus also the living standard of people with the salaries packages and income reduced. 12. Employment gaps: To further complicate the situation the longer the individual is out of job the more difficult it becomes to find one. Employers find employment gasps as a negative aspect. No one wants to hire a person who has been out of work for some time even when there’s no fault of the individual per say. 13. Lose of skills’ usage: The unemployed is not able to put his/her skills to use. And in a situation where it goes on for too long the person may have to lose some of his/her skills


The primary benefit of unemployment is that people are available for hire, without being headhunted away from their existing employers. This permits new and old businesses to take on staff. Unemployment is argued[citation needed] to be “beneficial” to the people who are not unemployed in the sense that it averts inflation, which itself has damaging effects, by providing (in Marxian terms) a reserve army of labour, that keeps wages in check. However the direct connection between full local employment and local inflation has been disputed by some due to the recent increase in international trade that supplies low-priced goods even while local employment rates rise to full employment.

Full employment cannot be achieved because workers would shirk if they were not threatened with the possibility of unemployment. The curve for the no-shirking condition (labeled NSC) goes to infinity at full employment as a result. The inflation-fighting benefits to the entire economy arising from a presumed optimum level of unemployment has been studied extensively. The Shapiro-Stiglitz model suggests that wages are not bid down sufficiently to ever reach 0% unemployment. This occurs because employers know that when wages decrease, workers will shirk and expend less effort. Employers avoid shirking by preventing wages from decreasing so low that workers give up and become unproductive.

These higher wages perpetuate unemployment while the threat of unemployment reduces shirking. Before current levels of world trade were developed, unemployment was demonstrated to reduce inflation, following the Phillips curve, or to decelerate inflation, following the NAIRU/natural rate of unemployment theory, since it is relatively easy to seek a new job without losing one’s current one. And when more jobs are available for fewer workers (lower unemployment), it may allow workers to find the jobs that better fit their tastes, talents, and needs. As in the Marxian theory of unemployment, special interests may also benefit: some employers may expect that employees with no fear of losing their jobs will not work as hard, or will demand increased wages and benefit. According to this theory, unemployment may promote general labour productivity and profitability by increasing employers’ rationale for their monopsony-like power (and profits).

Optimal unemployment has also been defended as an environmental tool to brake the constantly accelerated growth of the GDP to maintain levels sustainable in the context of resource constraints and environmental impacts. However the tool of denying jobs to willing workers seems a blunt instrument for conserving resources and the environment — it reduces the consumption of the unemployed across the board, and only in the short term. Full employment of the unemployed workforce, all focused toward the goal of developing more environmentally efficient methods for production and consumption might provide a more significant and lasting cumulative environmental benefit and reduced resource consumption .

If so the future economy and workforce would benefit from the resultant structural increases in the sustainable level of GDP growth. Some critics of the “culture of work” such as anarchist Bob Black see employment as overemphasized culturally in modern countries. Such critics often propose quitting jobs when possible, working less, reassessing the cost of living to this end, creation of jobs which are “fun” as opposed to “work,” and creating cultural norms where work is seen as unhealthy.

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