Social Costs Of Unemployment Essay, Research Paper

What are the social costs of unemployment? Can unemployment ever be completely cured?

Unemployment is what occurs when a person is seeking employment while lacking a job. It occurs all over the world, in every economy and government. It has various effects which affect amny lives.

Unemployment itself can be broken down into four main different types. Firstly there is frictional unemployment which is always present in a economy. It is a short duration unemlpoyment. It is caused by many workers who do not go from one job immediatly to the next. They spend some time unemloyed, a few weeks. This unemployment can be up to eight weeks that a person is not working.

The there is also seasonal unemployment. It is caused by changes in demand for workers at different times of the year. For example in the building industry very few workers are emloyed during the wimter months.

Cyclical Unemployment occurs when workers and factories lie idle due to insufficient spending in the economy to make use of all the factors of production. When the resulting unemployment is cyclical then it is said that the economy is in recession.

The there is also structural unemloyment. It occurs when firms and/or industries are run down and no new industry steps up to take up the workers which have been made unemployed. Therfore it is caused by a lack or insufficient capital in the economy. For example, factories, offices, machiunes…

There is also hidden or concealed unemplorment which is not as important yet it exists. It is workers who are unemployed but not are counted as unem,ployed in the statistics. For example young people in youth training.

When unemployment occurs, the people who are mostly affected are the unemployed themselves even though this is not seen as a social cost but as a private cost, in does in turn lead to a social cost. Due to lack of work, people become obsessed with need of money and food. Therefore desesperation comes and increased crime, violence on the streets and vandalism as well. People live in violence, the streets are no longer safe. For example the shanty towns in Lima, a lot of violence can be found there since the habitants do not have much money and they steal food and the little money they have.

Also the unemployed suffer psychologically, they feel they do not deserve anything, they are out of a job they feel rejected by society. Consumption of drugs and alcohol and suicide increases heavily among the unemployed. These people+s family suffer, this attittude can hurt anyone.

There tend to be some areas with a greater amount of unemployment then others. These areas are usually very run down. Shops are oout of buisness, due to the fact that they have gone bankrupt, since noone buys their products. Households in these neighbourhoods also do not have spare money to look after properties or gardens.Therfore thee appeareance of these areas is very bad. Every properties looks abandoned or uncared for. Since increased vandalism is occuring, then properties look even more run down since the damage done by he thieft is not fixed. Therefore it further destroys the environment.

Even though the largest problem is for the unemployed, their families and neighbours, those who work ( tax p yers) face a burden as well. The government has to pay increased benefits. This is due to the money the government must give the unemployed. This money comes from the taxes workers themselves pay.Also government loses revenue because these workers(the ones that are presently unemployed) would have payed taxes if they were employed. They would have payed income tax and National Insurance contributions on their earnings. They also would have payed more in VAT and excise duties because they would have been able to spend more, since they would have a wage. Therefore tax payers have to make up for the economy+s loss, the taxes the unemployed would have payed the government and it+s increased spending.

In the economy as a whole the tax payed by the employed which is then given to the unemployed as a transfer payment is not a loss. The cost to the whole of the economy has to sides to it. Fistly, there is a large loss of output.The unemployed would have produced a lot in the market they work in if they where employed yet since they are not a lot less is being produced. Therefore the economy would have been able to produce a lot of goods and services which would have been available for consumption. Also large social costs that affect everone is increased violence and depression which begin with the unemployed and the

communities where they live.

There is a diagram where unemployment is demostrated. Since there is a stable relationship between the rate of change of money and the level of unemployment then the diagram demostrates both unemployment and change of money. High rates of unemployment are associated with low rates of change of money wage rates whilst low rates of unemployment were associated with high rates of change of money wage rates. This line is called the Phillip Curve.

Yet before explaining such a curve it is important to discuss equilibrium in the labour market. This equilibrium exits when the demand for and supply are equal. If supply exceeds demand then there is disequilibrium. In this case unemployment is cyclical. Even when the labour market is in equilibrium unemployment can still exist. In these cases unemployment is frictional, seasonal or structural.

The graph is usually seen in two ways as short run and long run. As a short run Phillips curve one should assume that prices are stable and that an increase of aggregate demand exists. Then there is also the posssibility that planned investment has increased or the governmnt wishes to increase its expenditure. Then the aggregate demand curve will shift to the right. (fig.1) The economy then runs along the short run aggregate supply curve from A to B. This movement involves two increases, the increase of output as well as the increase in the price level. An increase of output is primarily associated with a fall in unemplyment. If there is a increase in price level, this obviously means inflation. When there is a move from A to B it is a change of for higher inflation for lower unemployment. The situation would not be any different if tha case was such that the aggregate demand curve was the one that had lowered. Therefore shifting the aggregate demand curve to the left except that the lower inflation would become higher unemployment. The Phillips curve demostrates that what occurs in the economy adjusts in the short run to s dedmand-side shock.

In the long run opposed to in the short run, what is in the short run point B, the equilibrium point is not in the long run. If the eceonomy where at full employment at the poiunt A, the eceonomy has turned into a position where over passing full employment at point B. The short run aggregate supply curve shifts upwards due to workers bidding up wage rate in the labour market.The movement from B to C involves a rise in measured unemployment mean while inflation decreases back to zero again, this occurs when the economy reaches point C. Remembring that there is no inflation in the economy at point A and once the eceonmy reaches C there are no forces which will increase prices anymore. In the long run no trade off between inflation and unemployment seems to exist.

Due to the analyses of the graph it is possible to say that unemployment can not be cured. If it where to hapopen then hyperinflation would occur in the economy. Inflation, a genral sustained rise in the price level, is not good for an economy. It gives econmic costs to society. These include shoe-leather and menu costs, psychological and political costs and costs that arise in the redistribution of the income in society. Therefore if one is to cure unemployment it will then lead to higher problems in a economy.