Consequences of Unemployment

Geoff Riley

1st January 2019

Persistently high unemployment create huge costs for individuals and for the economy
as a whole. Some of these costs are difficult to value and measure, especially the longer-
term social costs.

1.Loss of income: Unemployment normally results in a loss of income. The majority

of the unemployed experience a decline in their living standards and are worse off out
of work. This leads to a decline in spending power and the rise of falling into debt
problems. The unemployed for example may find it difficult to keep up with their
mortgage repayments.

2.Negative multiplier effects: The closure of a local factory with the loss of hundreds
of jobs can have a large negative multiplier effect on both the local and regional
economy. One person’s spending is another’s income so to lose well-paid jobs can lead
to a drop in demand for local services, downward pressure on house prices and ‘second-
round employment effects’ for businesses supplying the factor or plant that closed
down.

3.Loss of national output: Unemployment involves a loss of potential national output

(i.e. GDP operating well below potential) and is a waste of scarce resources. If some
people choose to leave the labour market permanently because they have lost the
motivation to search for work, this can have a negative effect on long run aggregate
supply and thereby damage the economy’s growth potential. Some economists call this
the “hysteresis effect”. When unemployment is high there will be an increase in spare
capacity - in other words the output gap will become negative and this can have
deflationary forces on prices, profits and output.

4.Fiscal costs: The government loses out because of a fall in tax revenues and higher
spending on welfare payments for families with people out of work. The result can be
an increase in the budget deficit which then increases the risk that the government will
have to raise taxation or scale back plans for public spending on public and merit goods.
The problems facing the UK government at the moment are closely linked to the surge
in unemployment.

5.Social costs: Rising unemployment is linked to social deprivation. For example, there
is a relationship with crime and social dislocation including increased divorce rates,
worsening health and lower life expectancy. Regions that suffer from persistently high
long-term unemployment see falling real incomes and a widening of inequality of
income and wealth. The recent figures on poverty in the UK are testimony to the social
damage that high unemployment can have.

https://www.tutor2u.net/economics/blog/revision-consequences-of-unemployment
The Enduring Consequences of
Unemployment
By Binyamin Appelbaum
Jan.05, 2019 10:30 am

Our economic malaise has spurred a wave of research about the impact of
unemployment on individuals and the broader economy. The findings are
disheartening. The consequences are both devastating and enduring.

People who lose jobs, even if they eventually find new ones, suffer lasting damage to
their earnings potential, their health and the prospects of their children. And the longer
it takes to find a new job, the deeper the damage appears to be.

Not since the Great Depression have so many Americans been unable to find work for
so long. But researchers have turned to the next-worst period, the early 1980s, to seek
a better understanding of the likely damage.

A 2009 study, to cite one recent example, found that workers who lost jobs during the
recession of the early 1980s were making 20 percent less than their peers two decades
later. The study focused on mass layoffs to limit the possibility that the results
reflected the selective firings of inferior workers.

Losing a job also is literally bad for your health. A 2009 study found life expectancy
was reduced for Pennsylvania workers who lost jobs during that same period. A
worker laid off at age 40 could expect to die at least a year sooner than his peers.

And a particularly depressing paper, published in 2008, reported that children also
suffer permanent damage when parents lose jobs. The study followed the earnings of
39,000 Canadian fathers and sons over 30 years beginning in the late 1970s. The study
found the sons of men who lost their jobs eventually earned about 9 percent less than
the sons of otherwise comparable workers.

These studies, however, generally do not consider the duration of unemployment:

whether the damage is greater after a year without a job than after three months.

Part of the answer is obvious: each day without work is a day without income, a drain
on savings, an increased chance of default on debts.

Studies show that people who can’t find work become more likely as time marches on
to suffer from depression and other health problems, according to a 2005 literature
review by professors at Oregon State University.

A 2010 Pew survey on the experience of long-term unemployment was aptly entitled,
“Lost Income, Lost Friends – and Loss of Self-Respect.”

Moreover, the odds of finding a new job diminish with time. Among workers in their
first month of unemployment, 34 percent found a job over the next month, according
to a study of 30 years of data published in 2010 by the Federal Reserve Bank of
Chicago. Among workers in their seventh month of unemployment, the study reported
only 19 percent found work in the next month.

The leading experts on unemployment caution that the significance of this pattern is
unclear. It is possible that less-qualified workers simply languish longer, and that the
state of unemployment is not itself worsening their prospects.

“It is difficult to establish whether this is because the duration itself worsens labor
market prospects, or because those workers facing the strongest challenges in the labor
market take longer to find a new job,” Till von Wachter, a professor of economics at
Columbia University, told Congress in 2010.

The importance of the distinction should not be overstated, however. It is the difference
between a problem that accumulates and a problem that accelerates.

And there is some evidence that unemployment itself makes it harder to find new work,
because unused knowledge and skills tend to atrophy.

Economists have struggled to quantify the loss of skills, generally asserting its existence
on the basis of circumstantial evidence. One exception, however, is a 2008 Swedish
study that frames the issue in rather striking terms.

The study found that unemployed people gradually lost the ability to read. If a person
had stronger reading skills than 30 percent of Swedes when they lost their job, one year
later their skills were stronger than just 25 percent of Swedes. Their reading
comprehension score dropped by about five percentiles.

https://economix.blogs.nytimes.com/2019/01/05/the-enduring-consequences-of-
unemployment/
SUMMARY
Unemployment, especially chronic unemployment, affects the
unemployed in ways other than their pocketbooks (=πορτοφόλια). It
affects their future ability to find a job, their psychological well-being
(=ευημερία) and more. Even the employed are affected by
unemployment because the ripple effects (πολλαπλάσιες / περαιτέρω
επιπτώσεις) affect the overall (γενική / συνολική) economy and the
communities where they live.

Future Employment Problems

The longer someone is unemployed, the more difficult it will be for them
to get out of this. Chronic unemployment can be self-perpetuating(=
αυτό-διαιωνιζόμενη), because the longer you are unemployed, the less
attractive you might be to potential employers. You look like damaged
goods when you go too long without being able to get your foot in the
door with (= αποκτήσεις πρόσβαση σε ) a career.

Less Overall Spending

When people are unemployed in large numbers, it hurts the rest of the
economy, creating a cyclical problem. When people have less money to
spend because of unemployment, other companies suffer from less
consumer demand. Then, when companies suffer, they might be forced
to make layoffs (=κάνουν απολύσεις), making the unemployment rate rise
and overall spending drop even more.

Psychological Effects
While unemployment does not have much of an initial effect on
someone's mental well-being, after a few months, it takes its toll (=έχει
το κόστος της). People experiencing chronic unemployment might
become anxious or depressed, and have trouble sleeping. Prolonged
(παρατεταμένη) unemployment also has a negative overall effect on a
person's sense of self-worth(=αυτοαξία / αυτοεκτίμηση), damage that
might remain in place even after the person is once again employed.
Community Ripple Effects
Even if you are not unemployed, the unemployment of people in your
community can hit home (=μπορεί να χτυπήσει και την δική σου πόρτα).
When people are unemployed, they will likely have difficulty paying their
mortgage (=υποθήκη), which could result in (=καταλήξει σε) foreclosure
(=κατάσχεση). Foreclosed homes, neglected properties
(=παραμελημένες ιδιοκτησίες) and vacant (=κενά)houses often lower
the property value (=αξία του ακινήτου) of homes that remain occupied.