Question

There are enormous amount of studies on the long term effects of unemployment on the economy? What are the consequences of long term unemployment? Should policy makers intervene?

Answer 1

Consequences of long term unemployment:
Long term unemployment is defined as a person being unemployment for more than 27 weeks and is still looking for job.

1. Effect on Individuals: Because of being unemployed, a person would have low purchasing power which makes to lose confidence levels leading to increased anxiety, stress and lower health levels.

2. Effect on society: The social issues like theft, burglary and crime rates would increase because of unemployment which affects the harmony of the society

3. Effect of Economy: The aggregate demand for goods reduces which reduces supply of good thereby affecting the economy from reaching full potential levels. Also, the government would have to pay the unemployment compensation which leads to increased burden of the government.
Yes government needs to intervene during high unemployment by increasing its spending on public activities and ease the monetary policies so that the investment increases and people would get jobs which increase the purchasing power and economic growth.