Discuss the economic consequences of unemployment

Sam Burton

As the level of Unemployment is at a new high, the consequence this is having is becoming more and more obvious. Having a huge workforce willing to work without making good use of them is a waste of resources. This has an impact on factories and manufactures because by not using the labour force they are limiting their ability to produce more goods and provide more services. This would make living standards higher; however these unemployed workers are not being put to work. By not employing workers the government has to pay a state benefit to these people, which is reducing their overall profit. By reducing the government’s profit, we are preventing them from spending the profit on improving education, care, transport or health. This effectively limits our standard of living and prevents it from improving. In order for the government to actually prevent themselves from actually losing money they would have to raise taxes to afford to pay for all of the unemployed. Higher taxes rates will reduce people’s disposable income and their spending power. A rise in government borrowing may push up the rate of interest, which in turn will also reduce their spending power. As the government has to pay benefits to those unemployed, principally job seeker’s allowance it has to reduce spending on health services such as NHS and education. It has already made decisions to reduce or bring to a halt the management and construction of council estates and made huge cuts on the NHS. If unemployment was lower taxes should be less and the standard of living and/or the production rates should be higher.

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The unemployed workers themselves will also become a problem. Many of those left unemployed are more likely to suffer from health problems such as mental illnesses. This will also continue to strain our economy. An increase in health problems will mean higher waiting lists for health care, thus reducing our standard of living. Many left unemployed or made redundant as a result of government cuts may also turn to crime. This means that the government will need to improve the judicial system and spend more money on improving the police. As job cuts are made by the government due to not making a profit, the unemployed are paid less by the job seeker’s allowance than they are used to. This then can bankrupt them as they swiftly move from one lifestyle of rich living to a standard lifestyle of minimum wage. Many then have to declare bankruptcy and the government then has to continue to pay out. If the parents of a child are made unemployed their lifestyle is also affected, and if the parents have to feed a large family on minimum wage poverty can begin to occur. Children will not be provided with all the food they need and general standards of living will rapidly decrease. A low standard of health also increases the strain on NHS and other health services and begin to work in poor conditions. This will lower the expectations of children and cause them to underperform. They will be less likely to have their own study area, have the concentration to work or to even not go to school. This will in turn increase the unemployment rate and will result in a rapidly decreasing economy.

One of the costs of unemployment can be unemployment itself. This is known as hysteresis. The longer people are out of work, the harder it is for them to gain another. Employers may be reluctant to take on workers that have not worked for a long period of time because this can indicate that they are not good workers or that they may have forgotten their profusion. The longer they are out of work, the more their skills become rusty and they may not be up to date with the latest methods of work or technology. The more the workers stay out of work, the more they will be discouraged to work, and will have been used to being at home and not working. Their work ethic may be very low and will hold back a company and stop them from fully maximizing their output. Unemployment in a country’s trading partners is likely to reduce demand for its exports. This, in turn, will reduce the countries aggregate demand and may cause some unemployment. There are however benefits of unemployment; for those without jobs it gives them the option to get another job, which can sometimes be better paid then his/her previous job. The existence of a large available labour force is also good for expanding businesses. The existence of high unemployment levels may also discourage workers for asking companies for raises, thus saving the company money.

It is generally agreed that the costs of unemployment above a certain level exceed any benefits which is why unemployment is one of the main macroeconomic objectives pursued by governments. The severity of the consequences depends upon the amount that the unemployment figures raise. The higher the rate of unemployment, the more serious the costs are likely to be. A 3% unemployment rate is not considered to be a problem as there are always people between jobs, or taking time off temporarily. On the other hand a 10% unemployment rate is likely to be a problem as this would then begin to prove a strain on government money and would raise taxes.

Not only the percentage of unemployment, but the length of unemployment rates also needs to be considered. For example an unemployment rate at 20% for 3 months would not be as bad as an unemployment rate of 13% for 3 years. This is because the consequences will build up over time. Generous unemployment benefits reduce the costs of unemployment but they have an opportunity cost for the economy.

Of course there are always disadvantages but there are minor benefits that come with unemployment that people discard; such as the ability to choose from thousands of workers rather than a select few. But the strains it can cause on the government and the cuts that have to be made are usually drastic.

Peer Reviews

Here's what a star student thought of this essay

groat

4th of Mar 2012

Quality of writing

This essay lacks an introduction, which would've been a good opportunity to define unemployment and why it occurs. This would've naturally allowed the discussion of the significances of different causes, gaining evaluative marks. Also, a clear introduction would've showed the knowledge and understanding necessary early on. There is some attempt at a justified judgement in the conclusion, saying there are benefits and negatives. This is where the essay needed to talk about the significance of a consequence, possibly concluding that this is why low employment is a macroeconomic objective. Spelling, punctuation and grammar are strong.

Level of analysis

The analysis in this essay is sound, but there is room for improvement. The first paragraph does well in addressing the problem of wasted resources due to unemployment, however it was a shame not to see efficiency discussed. I always like to get a diagram into an economics answer, so If I was answering this question I would've included a PPF (production possibility frontier) showing where a state of unemployment is. The progression through the points is strong, as each step of the analysis is explained clearly. This shows the examiner a strong understanding of the consequences, as you show why each stage occurs. However, they have missed out on talking about international competitiveness. This theme could feature in all points. For example, a waste of resources means that UK firms are less productive and so their products are more expensive on the international market. Increased spending on benefits and social security has an opportunity cost of spending on education, which would increase productivity. If other countries are investing in education, the UK will fall behind internationally. Being able to link an argument to all of the points would be strong! The hysteresis paragraph is particularly strong, as this is a concept which is often confused. Both negative and positive consequences are considered throughout, but once again elaborations could be made. For example "The existence of high unemployment levels may also discourage workers for asking companies for raises, thus saving the company money" shows good awareness of a benefit. I would've put a simple statement saying that this puts less upwards pressure on wages, and thus inflation.

Response to question

This essay engages with all the main points relevant to this question, however there are places where the analysis could be more detailed. When the question uses a command word such as "discuss" or "comment" that is prompting you to make an evaluative statement. This could be an exploration of which consequences are most significant, or to what extent unemployment is always unfavourable. It was a shame not to see any evaluation in this essay, and so this essay would not gain the highest marks. Whenever you talk about unemployment, you must discuss what causes the unemployment to gain evaluative marks.

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