We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

The effects of unemployment on the economy Essay

Economists call unemployment a lagging indicator of the economy, as the economy usually improves before the unemployment rate starts to rise again. However, unemployment causes a sort of ripple effect across the economy. The two key problems resulting from unemployment, especially the unemployment of labor, are personal hardships and lost production. The owners of the unemployed resources suffer personal hardships due to the lack of income. The rest of society also suffers from unemployment due to the lack of available production. Unemployment creates personal hardships for the owners of the unemployed resources. When resources do not produce goods, their owners do not earn income. The loss of income results in less consumption and a lower living standard. While this problem applies to any resource, it is most important for labor. The owners of capital, land, and entrepreneurship often earn income from more than one resource. Thus a loss of income from one resource is not a total loss of income. Many workers, however, often earn income only from labor. The loss of income from labor might mean a total loss of income. Unemployment also causes total production in the economy to decline. If fewer resources are engaged in production, fewer goods and services are produced. As suggested by the circular flow model, the severity of the connection between lost production and unemployment is magnified by the multiplier effect. An initial decline in the income, consumption, and production associated with unemployment triggers further declines in income, consumption, and production. As such, members of society, who might escape the direct immediate personal hardships of unemployment, often succumb to the indirect, multiplicative problems of lost production. Number-crunching economists have estimated that for each 1 percent rise in the unemployment rate, that gross domestic product declines by 3 percent. Lost production is especially troublesome because it is an opportunity that is lost forever. This lost production delays society’s efforts to increase living standards and address the problem of scarcity. That is, when an unemployed worker does NOT produce output today, that output can never be recouped. If a worker is unemployed on Monday, Monday’s production is lost forever.

How to cite this page

Choose cite format:

The effects of unemployment on the economy. (2016, Mar 09). Retrieved from https://studymoose.com/%ef%bb%bfthe-effects-of-unemployment-on-the-economy-essay

We will write a custom essay sample onThe effects of unemployment on the economyspecifically for you

for only $16.38 $13.9/page
Order now

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.

Our customer support team is available Monday-Friday 9am-5pm EST. If you contact us after hours, we'll get back to you in 24 hours or less.

By clicking "Send Message", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
No results found for “ image
Try Our service