Consequences of Unemployment

Economic and Social Consequences of Unemployment

Unemployment is costly to an economy and a society well beyond the individual who lacks a job — its effects spread outward in both economic and social directions.

Economic consequences:

1. Loss of potential national output — every unemployed or underemployed worker represents productive capacity the economy is not using; the goods and services that worker could have produced are simply never created, permanently lowering national income below its potential.
2. Lower personal and household income, and persistence of poverty — a person without work, or without adequate work, earns little or nothing, which directly feeds into and perpetuates poverty (studied in the next chapter) — unemployment and poverty reinforce each other in a vicious cycle.
3. Reduced savings and investment — households facing unemployment save less (or draw down existing savings to survive), which reduces the pool of funds available in the economy for investment, in turn slowing future job creation — a further vicious cycle.
4. Increased burden on public finances — governments often respond to unemployment with welfare spending, unemployment relief, and employment-generation schemes, all of which place a fiscal burden on the public exchequer.
5. Wastage of investment in education and training — when educated persons cannot find matching work, the private and public resources spent educating them are not put to productive use, a real economic waste.

Social consequences:

1. Rising poverty and inequality — unemployment concentrates hardship among those without work, widening the income gap between the employed and the unemployed.
2. Psychological distress and loss of self-esteem — prolonged unemployment, especially among educated youth who expected a certain standard of work and income, often causes frustration, anxiety, and a sense of purposelessness.
3. Rise in social tension and crime — economic desperation arising from unemployment is frequently linked to a rise in petty crime, social unrest, and in extreme cases, involvement in illegal or anti-social activity.
4. Rural-to-urban migration and urban congestion — unemployed and underemployed rural workers often migrate to cities in search of work, adding pressure on urban housing, infrastructure, and civic services, and often ending up in slums with insecure, low-paid informal work rather than the better jobs they sought. …