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Introduction

Discuss the economic consequences of unemployment? In this essay the economic benefits and consequences of unemployment will be discussed. Unemployment can be defined as the percentage of the working age group willing and able to find employment but without work. It can be separated into five categories; cyclical deficient, classical, structural, frictional and seasonal unemployment. There are two methods for measuring unemployment. Firstly, the claimant count measure adds up all those claiming unemployment benefits. It is cheap and easy to collect however; it is not very accurate and exaggerates the unemployed figure as many claimants are untruthful thus exaggerating the unemployment rate. In contrast the International Labour Organisation measure is more expensive but also more accurate. The main advantage of the ILO is that it can be compared with other countries directly. Firstly, unemployment will lead to an economy producing under the PPC showing inefficiency and a waste of resources which will do little good to the basic economic problem of unlimited demand and limited resources. ...read more.

Middle

The health of workers will suffer as unemployment and a lower income leads to a poorer diet and falling expenditure on merit goods. Similarly workers may suffer mental and physical health problems which could lead to alcoholism, marriage breakdown or suicide leading to an increased burden on the NHS. A combination of all these problems can lead to a rise in crime as people will look to other ways to make money. This increases the burden on the police. Similarly equity will suffer as disposable incomes drop. On the other hand, workers leisure time expands. This means they have more time to spend with their family thus despite having a lower material standard of living they have a higher quality of life. Overall the extra burden on the NHS and police will lead to higher taxes as more money is needed to expand the NHS and police forces capacity. ...read more.

Conclusion

However, actual growth slows with falling aggregate demand leading to lower levels of consumption and investment. This could force some firms out of the industry as demand for their good or service is low due to lower disposable incomes. It can be concluded that unemployment has severe consequences on the economy. The consequences of unemployment outweigh the benefits. Unemployment causes an economy to be productively inefficient and reduces consumer confidence. This causes demand to drop causing more unemployment as firms fail to adjust to the falling demand. There is a high opportunity cost of the output and welfare forgone imposed by unemployment however, the unemployed should be reallocated to where we have greater needs i.e. the private demand of hospitals schools or police. This however, will not benefit the economy as the work force has to be retrained and experience gained in their new profession. In a like manner, government spending increases on income related benefits and funding to the NHS and the police increases. This leads to lower investment as government income is lower. ...read more.

This student written piece of work is one of many that can be found in our AS and A Level Macroeconomics section.