Question

In: Economics

Why is a high unemployment rate not good for the country?

Why is a high unemployment rate not good for the country?

Solutions

Expert Solution

The effects of high unemployment rate :

While economists and academics are convinced that there is a certain natural level of unemployment that cannot be erased, elevated dunemployment imposes significant costs on the individual, the society, and the country. The economic and societal damages caused due to unemployment are of the dead loss variety, where there are no offsetting gains to the costs that everyone has to bear.

Unemployment has an adverse effect on the individual and the society as a whole. Unemployment causes the following problems:

  • Health Issues : This though an individual effect, is still a serious problem. Being unemployed, especially for long durations, can lead to depression, low self-esteem, anxiety and a host of other mental health issues. Tension and uncertainty can cause stress and strain on the body. Mental illness is one of the major reasons for suicide. A country with high unemployment rate will see a rise in its suicide and self-harm statistics. Unemployment also leads to people ignoring their physical health problems until they become serious and require immediate and emergency hospital admissions, thus causing previously avoidable problems to now become life threatening and thus cause higher strain on the country's healthcare system.
  • Economic Issues : Unemployment means no source of income, which leads to poverty. It increases the debt burden and leads to more economic problems. When a country has a problem of high rate of unemployment, the federal and state governments have to step in and pay unemployment benefits. With more people requiring unemployment benefits and other such financial aid, the government has to borrow more to pay for these benefits or cut its spending in other areas.
  • Social Issues : Most crimes are committed by individuals who are unemployed and/or livinh in poverty. With a rise in unemployment rates, there is also a subsequent rise in crime rate. Burglary and other smaller crimes rise first, followed by an increase in the murder rate as people become more desperate for money.
  • Homelessness : Loss of income leaves people without sufficient income to meet housing costs or even rent. High unemployment rates lead to a rise in the rate of homelessness.
  • Harms Future job prospects : Those who are unemployed will find it much more difficult to get work in the future. Companies prefer hiring freshers (people who have joined the workforce recently) compared to hiring someone who is currently unemployed.
  • Lower GDP : High unemployment rate indicates that the economy is operating below capacity and is inefficient. This leads to lower output and incomes. The unemployed, who lack the financial resources to purchase goods and services, contribute to lower spending and lower output. A rise in unemployment causes a negative multiplier effect.
  • Political Instability : A period of mass unemployment can lead to social unrest. After World War 1, millions of young people in all major countries became jobless. It led to the rise of dangerous political ideologies. Young people flocked to leaders who promised a quick solution to all their problems. This led to the rise of Hitler and his Nazi ideology in Germany and of Mussolini and Fascism in Italy. Periods of high unemployment exacerbate problems of poverty, alienation, and levels of inequality.
  • Lost human capital : High rates of unemployment can reduce labour productivity. If someone has been unemployed for a couple years, they miss out on the latest work practices and trends.

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