Cost of Unemployment

Unemployment is universally recognized as a disease with no proper cure. Today, almost every country, whether it be developed, developing or underdeveloped, is fighting from different types of unemployment issue.  According to the ILO report, more than 200 million people globally or 6% of the world’s workforce were without a job in 2012. This elevated unemployment imposes a significant cost of unemployment on the individual, the society, and the country.

In this article, I will discuss the three different types of cost of unemployment i.e. Personal, Social & Economic cost. 

Cost of Unemployment

The costs of unemployment for the individual is financially and often emotionally destructive. It leads to less affordability, lack of funds, and fear of job loss among the employed’s. The drop in people’s spending power directly leads to less consumption of resources. This decrease in the spending capacity of people has a negative effect on the economy too. People buy less and invest less and if this continues for long then it may lead to an economic decline. 

There are three different types of ‘cost of unemployment’:-

  1. Personal Cost
  2. Social Cost
  3. Economic Cost 

Personal Cost of Unemployment

Unemployment cost to an individual is unimaginable. When someone loses his or her job, there is often an immediate impact on his or her standard of living. In fact, an economist Binyamin Applebaum explains that the costs for an unemployed individual are both grave and long-lasting. The different types of personal costs are as follows:-

1.Loss of income

The most immediate impact of unemployment on an individual is the loss of his income. This leads to less spending on livelihood and decline of living standard. This might also lead to unpaid bills & mortgages. 

2. Underemployment

Underemployment is one of the serious cost of unemployment. On losing jobs, people are forced to take up work that does not suit their skills, experience, and educational qualifications. This also leads to lesser PayScale.

3. Employment Gaps

As a matter of Fact, the longer the individual is out of the job the more difficult it becomes to find one. Employers always consider an employment gap as a negative aspect. They don’t want to hire someone who has been out of work for some time even when the individual has got all the required skills.

4. Stress & Anxiety

Increase in the level of anxiety and stress among the jobless is another cost of unemployment to an individual. The inability to get a job gives them a feeling of failure, feeling dejected and hopelessness. This also leads to loss of interest in living and also having suicidal thoughts. 

5. Mental health

Apart from stress & anxiety, loss of income might also lead to mental health problems like low self-confidence, feeling unworthy, depression and hopelessness. This frustration causes the recently unemployed to develop a negative attitude towards common thing in life which in turn leads to declining of the physical health and shortening of lifespan.

6. Affect the Future 

Unemployment adversely affects the future of an individual as it alters their future planning. Lack of income means lack of investment on oneself. This also leads to an individual being less willing to invest in the long years of training/education that some job requires. 

7. Loss of skills

If your brain doesn’t recall something for a long time then it gets erased from your brain, in other words, you forget it. Sometimes being unemployed for a long time and not able to put your skills to work might make you lose some of your skills.

7. Outdated Skills

There are chances that the skills required to work in the current job market might be of no use in the future job market. If you are unemployed for a long time then you should enhance your old skills in order to get employed in future. 

9. Stigma

Unemployment comes with more than just ‘no work’. It comes with a symbol of disgrace that the person has to bear. Needless to mention, nobody likes to be termed as unemployed.

Here is: How to increase your chances of getting employed?

Social Cost of Unemployment

Unemployment not only affects the individual, it affects his/her society too. Unemployment affects their family and their community as a whole. The different types of social costs are as follows:-

1. Tension at home 

The foremost cost of unemployment in social life is ‘Tension at Home’. It leads to Quarrels and arguments at home which in turn leads to tension, family breakup and increased numbers of divorces. It is also one of the main cause of domestic violence.

2. Lower-Middle-Class Lifestyle

Unemployment or Underemployment both leads to a lower-middle-class lifestyle of a family. Managing a family with low income is out of the question. Family medical expenses, entertainment, housing everything is compromised due to less income or no income.

3. Family Education

Unemployment is directly related to education. In fact, people are not uneducated, they are just poor. The individual with less income or no income is forced to deny educational rights of his/her children. This is another cause of unemployment.

4. Social outing 

Social outings and interactions with other people, including friends are highly compromised due to unemployment. Sometimes unemployed people are ashamed of meeting their friends & families.

5. Crime & Violence

Lack of income leads to poverty which in turn leads to increase in crime & violence in the society. Many studies have shown that unemployment often correlates with less volunteerism and higher crime. This certainly makes sense because absent of a wage-paying job might turn people to crime to meet their economic needs or simply to relieve the feeling of being bored.

6. Political Instability 

Unemployment leads to the feeling of insecurity among the people which in turn leads to political instability in the society. Moreover, their poverty and hardships might lead them to lose their trust in the government.

Economic Cost of Unemployment

Every economic cost arises due to personal or social cost and it directly affects the growth of the country. The different types of Economic Costs are as follows:-

1. Low Tax Collection

The government tax collection depends on the number of employed population in the country. It’s obvious that if fewer people are earning then less tax is being paid. If unemployment rate crosses 5% mark then it directly affects the government’s revenue generated by tax collection.

2. Negative multiplier effects 

One person’s spending is another’s income. Due to unemployment, the demand for the products goes down, which forces the factory outlets to shut down or reduce their production. This leads to the elimination of workforce & causing further unemployment. This is known as ‘Negative Multiplier Effect’, which is one of the biggest economic cost of unemployment.

3. Decline of GDP

When the unemployment rate is high then the output gap becomes negative and the prices, profits, and outputs are reduced by a big margin. This leads to a loss of potential national output i.e. GDP operating well below potential. 

4. Unemployment financial costs

In many countries, when people are out of work then the government has to pay some benefits to the unemployed. Also, government spending increases with the increase in the number of unemployed. There are several government policies such as ‘expansionary fiscal policy’ & ‘Monetary policy’ that comes into action when the unemployment rate hits a certain mark.

  • Monetary policy means cutting the interest rates to boost Aggregate Demand. 
  • Fiscal policy means cutting the taxes to boost Aggregate Demand.
5. Rise of Taxes

In order to meet the demands of the unemployment fund, the government sometimes increases the taxes. This has an adverse impact on businesses as unemployment benefits are financed largely by taxes assessed on businesses. The companies were already suffering from less demand for their products & now they have to pay higher taxes. This also discourages the companies to hire or retain more workers.

6. The reduced spending power of Employed

The spending power of employed population is also affected due to unemployment. They too start to spend less than before because of increased taxes & job insecurity. Henceforth, affecting the economy and also the society in a negative manner.


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