Cost and Benefits of Unemployment Flashcards
What are some costs of unemployment to individuals?
1) Lost income. People will spend less and save more.
2) Loss of status. People will forget their self-worth.
3) Social and psychological impacts.
What are some costs of unemployment to the economy?
1) Lost output. If workers are not being used, theres lost output.
2) Deterioration of gov finances. Gov may need to spend more on unemployment benefits as a results. Theres also less tax revenue aswell. Here theres an oppurtunity cost. Gov may need to borrow to spend money and so this debt will effect the future generations through higher taxes.
3) Hysteresis. Workers who keep trying to get a job but get rejected, may get discouraged. As a result of this long term unemployment, their skills become outdated and useless. They may then drop out of the Labour Force.
4) Social costs. There may be higher levels of crime, deviance, divorce, stress, and depression. This will require more spending.
What are some benefits of unemployment?
1) Firms benefit from a greater choice. They can look for the best and most productive workers.
2) Workers have time to search for the best job for them. They will pick the one they are most suitable for.
What are some evaluation points for the cost and benefits of unemployment?
1) The cost and benefits depend on the duration and type of unemployment. EG: Structural unemployment. If people dont have the skills to take jobs, unemployment may be long term. This will be more costly and harmful.
Frictional can be good for the economy.
2) Severity. If unemployment is at the natural rate its fine, but if its any higher then the costs can be worse.
3) Level of unemployment benefits. If the level of unemployment benefits are high and generous, it may reduce some of the costs involved. But key to mention that the government will have to spend a lot more.
