Question

Write the three consequences of unemployment

Answer 1

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.

Answer 2

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Consequences of unemployment are:

• Unemployed leads to wastage of Manpower resources.

• Unemployment tends to increase the economic overload that is dependence of the unemployed on the working population.

• Unemployment may lead to increase in social unrest and tension.

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Hope it helped!!