The Cost of Unemployment to the Economy

Some adverse effects of unemployment are long-lasting.

Photo: Gustavo Fring, Pexels

(SALEM, Ore.) - High unemployment is undesirable for you and the general economy. This was more evident than ever when the COVID-19 pandemic hit the world leaving millions of people jobless.

Countries all over the globe had to come up with COVID-19 relief packages to help the unemployed and self-employed individuals. While there is no certainty that natural unemployment can be fully erased, high rates of unemployment imposes significant cost on individuals, society and the country in general.

Unemployment is even worse when most of the cost are dead loss kind, i.e. there are no offsetting gains to the costs that one must bear.

Here is a detailed breakdown of how unemployment has affected the general economy:

1. Cost to individuals

In the US, before the great recession, the average savings rate had been slow trickling down to zero and sometimes below zero, and there are many reports suggesting an average person is only a few weeks from financial distress without a paying job.

But what about their nest egg? Well, according to GOBankingRates' 2019 savings survey, nearly 70 percent of Americans have less than $1,000 stashed away, and 45 percent have nothing saved at all.

Even for those individuals eligible for unemployment benefits and reliefs, the benefits only cover 50% or less of their regular income. Meaning, these individuals are making cuts on budget and consuming less than usual.

The economic consequences go beyond less consumption. When someone loses their job, most will turn to retirement savings and draining your savings has long term financial ramification.

Staying out of a job for a long period of time can result in erosion of skills especially for graduates. This basically robes the economy of otherwise useful skill and personnel.

At the same time it can lead to skepticism and pessimism about the value of education which can lead to some people being less willing to invest in education and training.

In some cases, the lack of income can deny other members of the family educational opportunities and deprive the economy of young talents.

2. Cost to society

Studies and News Economy show that high unemployment rate often correlate with higher crime and less volunteerism among the youth. Without any source of income, many people turn to crime to meet their daily economic needs.

The financial distress result to drug abuse and alcoholism has lead volunteerism decline. The psychological impact if joblessness may lead to resentment towards individuals with a job.

3. Cost to country

High rates of unemployment result in higher payments from the state and federal government for unemployment benefits, Medicaid, and food assistance. For instance, during the COVID-19 pandemic the federal government has used $18.26billion for unemployment benefits.

At the same time, the government is no longer collecting the same level of taxes as they did before. This forces the governments to borrow money, which reduces the cost and impact of unemployment.

A large percentage of what the economy produces goes to personal consumption and unemployed workers. Even individuals receiving government stipend cannot spend the same as they did before. The production of these workers leaves the economy, which affects the gross domestic product negatively and makes the country inefficient in allocation of its resources. Company and businesses also pay a high price for high rates of unemployment. Unemployment benefits are mostly from taxes assessed on businesses.

When the rate of unemployment is high, governments often increase taxation on companies and businesses. Consequently, this prevents businesses from hiring more personnel.

As a result, companies face problems like low demand for their products because they are too expensive and high expenses on retaining and hiring new workers.

Conclusion

Some adverse effects of unemployment are long-lasting. Many News Economy professionals suggest that consumer and business confidence are key to economic recoveries from unemployment and workers must invest in developing their skills to help the economy grow in the future.

Source: Salem-News.com Special Features Dept.