Unemployment and its Costs

Unemployment is the number of adult workers who are not employed and are seeking jobs. To be classified as unemployed, a person must be able and willing to work, be actively seeking work, and be without a job. Everyone who fits this description is unemployed. The labour force is the total number of employed and unemployed workers. The unemployment rate is unemployment expressed as a percentage of the labour force.

Some economists believe that unemployment is inevitable, and a necessary evil to prevent inflation. To the individual worker, unemployment is a tragedy; one that the government should do something about. To the economist, who is looking at the big picture, unemployment is a necessity, and a certain amount of unemployment is necessary to maintain a healthy economy. That is, if there is full employment, it tends to mean there is an undersupply of labour, and this means the cost of employing anyone becomes exceedingly high.

Unemployment has negative sides both for economy as a whole and for individuals. The most obvious economic cost of unemployment is the loss of output and the loss of income. Loss of tax revenue is another economic cost - unemployed people aren’t earning and they therefore aren’t paying tax. Apart from that, a high rate of unemployment is followed by an increase in government expenditure – the government has to pay out benefits to support the unemployed. Along with the loss of tax this is a ‘double whammy’.

Perhaps the main cost of unemployment is a personal one. Prolonged unemployment seriously lowers the value of a person’s human capital, i.e. the value of a person’s education and acquired skills. When unemployment is prolonged, human capital depreciates or deteriorates – skills lose their value. A rise in the unemployment rate also causes an increase in the amount of crime. When people cannot earn an income from legitimate work, they sometimes turn to crime. A high crime rate is also one of the costs of high unemployment. A final cost that is difficult to quantify is the loss of self-esteem that is human dignity, which afflicts people.

It is clear therefore that unemployment carries substantial economic and social costs. In this connection many governments focus their labour market policies on improving the employment prospects of the long-term unemployed.

Ex. 1. Match the Russian words combinations with their English equivalents.

A	B
естественный уровень безработицы	a natural rate of unemployment
снижение выпуска продукции	a double whammy
издержки безработицы	a labour turnover
текучесть рабочей силы; размер текучести рабочей силы	costs of unemployment
официальная, законная работа	a loss of output
беспокоить; причинять боль, страдания (кому-либо)	a human dignity
недостаточное предложение рабочей силы	legitimate work
человеческое достоинство	to afflict smb
двойной удар	undersupply of labour

Ex. 2. Answer the questions:

1. What is unemployment?

2. What do they call the total number of employed and unemployed workers?

3. What are the negative sides of situation with full employment?

4. What are the positive sides of unemployment for individuals and economy as a whole?

5. What are the economic costs of unemployment?

6. What social costs of unemployment do people suffer from?

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To check your comprehension do the tasks that follow.