Homework Assignment:

Evaluate the consequences of unemployment

Unemployment has both positive and negative aspects. Starting off
with the positive side, some unemployment is really useful because the
economy becomes more flexible so expanding industries will find
workforce when demanded. These unemployed people may be frictionally
unemployed. This type of unemployment is the one which only takes 2%
or 3% of the total workforce, and is when people are moving from one job
to another, so they are momentary unemployed for up to 8 weeks.
Even though there are some positive aspects of unemployment, it
mainly is a problem that affects the; unemployed, those in work, the
government, the economy and leads to some regional problems.
Beginning with the unemployed, they have a very low income that
comes from government policies. It is called unemployment benefits.
Those are given in most countries to the unemployed, and are just enough
for them to survive. It is so the main cause of poverty and surely they will
have a lower standard of living. This dropped demand good for everything
also boosts the Cyclical unemployment, in which people are fired because
less goods and services are sold because less are demanded. Some
workers also are excluded because they have been unemployed for a long
time. This is because employers prefer to hire someone who lost his job
more recently than them, and as a result they are excluded from the
workforce. As those people suffer low standard of living, they also suffer
from a loss of self-esteem because nobody wants to hire them. They may
be depressed and also cause problems in the society like increasing crime
(thefts for money), drug abuse (to try to make themselves feel better),
suicide (because of depression) and others.
Another group of people which get problems because of
unemployment are the employed people. The employed people pay taxes
to the government. The government then proceeds to use part of those
taxes in paying unemployment benefits. What basically happens, people
that work, pay for the people that do not. As unemployment increases,
less money is spend on good and services so firms sell less, and the
government gets less income from the VAT taxes. As a result it may
increase direct taxes which affect directly the workers. Lastly those who
are working, are unlikely to get a their wages raised because employers
can find people who are willing to work for lower wages, so on a daily
basis, the workers are afraid that might be fired.
The government is another thing that has problems due to
unemployment. Its budgets drop rapidly. This is because not only they do
not receive taxes because people do not work to get part of their income
cut as taxation, but also the government has to pay them unemployment
benefits. So the income drops and the expenses rise, leading to budget
deficit. As a result, the government will have to make cuts from other
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areas to improve its financial position. The cuts may be on things like
improving the roads, schools, public hospitals or other things, making the
society suffer in a lower standard of living.

The economy as a whole also suffers because we know that the

economic problem is that there are infinite wants but scarce resources.
The four factors of production are Land, Capital, Enterprise and Labour.
When there is unemployment, the economy is not using all of its resources
to satisfy the needs and wants of the consumers. As it does not use its
entire workforce, the Labour is wasted, so the economy is not efficient.
There is also an opportunity cost involved; all the goods and services are
sacrificed that could be produced if the unemployed were actually
employed. Here again cyclical unemployment is involved.
Last but not least, unemployment causes some regional problems.
The economy in a region may go to recession because of unemployment.
This might happen in cases such as structural unemployment. If an
industry that is declining is concentrated in a specific region, most of the
people in that region will become unemployed and will not have a lot of
money to spend to other goods and services that are available, causing
cyclical unemployment in the local economy. For example if an industry
closed down that was concentrated in a town, all those who worked there
will now receive no major income so they will spend less money in local
businesses such as restaurants and cafes. As the demand for those things
will fall, the employers will need to fire some employees in order to keep
the business working, but the unemployment will rise, causing further
unemployment (cyclical unemployment).

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