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  • Costs of Unemployment

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    Nandy Raghoo Gopaul
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    High levels of unemployment are costly to both individuals and the overall economy. There are economic costs like lost output and fiscal costs to the government from higher benefits and lower tax revenues. There are also social costs such as higher crime and worse health outcomes. Unemployment reduces the skills of workers and their future employment prospects, increasing the burden on society.

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    High levels of unemployment are costly to both individuals and the overall economy. There are economic costs like lost output and fiscal costs to the government from higher benefits and lower tax revenues. There are also social costs such as higher crime and worse health outcomes. Unemployment reduces the skills of workers and their future employment prospects, increasing the burden on society.

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    © All Rights Reserved
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    28 views15 pages

    Costs of Unemployment

    Uploaded by

    Nandy Raghoo Gopaul
    High levels of unemployment are costly to both individuals and the overall economy. There are economic costs like lost output and fiscal costs to the government from higher benefits and lower tax revenues. There are also social costs such as higher crime and worse health outcomes. Unemployment reduces the skills of workers and their future employment prospects, increasing the burden on society.

    Copyright:

    © All Rights Reserved
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    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 15

    Costs of unemployment

    Most 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 when unemployment is ever
    present.
    Economic Costs of Unemployment
    1)Lost output of goods and services -
    Unemployment 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.
    (2) Fiscal costs to the government - High unemployment
    has an impact on government expenditure, taxation and the
    level of 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 .
    (3) Deadweight loss of investment in human
    capital - 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
    Rising unemployment is linked to social and
    economic deprivation - there is some positive
    relationship between rising unemployment and rising
    crime and worsening social dislocation (increased
    divorce, worsening health and lower life expectancy). 
    Total Population

    Under the legal age Work age population


    Incarcerated

    Labour Force Not in the LF Retired

    Employed Unemployed Discourage


    Worker

    Fulltime Part-time
    Key definitions:
    Labour Force: This consists of all those persons who are part
    of the working age population and are willing and capable of
    working. (Employed + unemployed)
     
    Working age population: This is the population of persons
    who are over the legal working age (usually 16).
     
    The unemployed: Persons who are part of the labour force
    and are not gainfully employed.
     
    The employed: Persons who have a job outside of the home
    or a paid job inside the home (freelance writer).
     
     
    The unemployment rate: The ratio of unemployed
    persons to the labour force.

    Unemployment rate = number of unemployed persons


    total labour force
     
    The employment rate: The ratio of employed persons
    to the labour force.
     Employment rate = number of employed persons
    total labour force
     
    The labour force participation rate: The ratio of the
    size of the labour force to the working-age population.
     
    Labour force participation rate = size of labour
    force
    total working age
    population
    Employment-to-population ratio =number Employed workers
    total working age population
     
    The discourage worker: A discourage worker is one who out
    of frustration decides to stop looking for a job but he/ she
    would accept one if it became available. The presence of the
    discourage worker effect under estimate the true value of the
    unemployment rate.
    Full Employment
    Economist say that the economy is at “full employment”
    when it is experiencing only frictional and structural
    unemployment. That is, full employment occurs when
    there is no cyclical unemployment. Economist describes
    the unemployment that is consistent with full employment
    as the full employment rate of unemployment, or the
    natural rate of unemployment (NRU).
    At the NRU, the economy is said to be producing
    its potential output. 20th century British economist
    William Beveridge stated that an unemployment
    rate of 3% was full employment. Other economists
    have provided estimates between 2% to 7%,
    depending on the country, time period the various
    economists’ political biases. “Natural” does not
    mean, however that the economy will always
    operate at this rate and thus realize potential
    output. The unemployment rate could be
    higher or lower.
    Why do people become unemployed?
      1) Job losers: People who become unemployed
    since they lost their previous job.
     
    2) Job leavers: People who become unemployed
    because they quit their previous job.
     
    3) New entrants: Persons who are unemployed
    because they just entered the labour force and have
    not yet found a job.
    Revised Labour market
    and wage determination

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