Wednesday, January 19, 2011

The Cost of Unemployment

Economists and the fed talk a lot about inflation and it's huge costs to the economy.  However, since the fed currently controls inflation by wrecking the economy and causing unemployment, we should be aware of all the short and long term consequences of unemployment.

Unemployed is the state of wanting to work, but not able to.  Of course, the most obvious consequence of this is on the people who are unemployed.  They lose their wages and means to support themselves.  That means they have to spend less, tap into savings, and possibly disruptive events such as losing a home, a car, or other assets bought on credit.  These are just the short term consequences of short-term unemployment.

Long term consequences of being unemployed can have devastating effects on a person's family, their physical and mental health, and potential income.  Studies have shown a correlation between unemployed spouses and divorce.  It can even affect children of the family.  The mental health of a person who's been unemployed for an extended period of time is enormous.  For reasons that should be fairly self-evident, the unemployed are more likely to suffer from depression and anxiety than those who aren't.

Finally, the financial hit taken by the unemployed isn't just the immediate loss of wages, it is also lost future income.  If you are unemployed for a year or more, then that means you've lost an entire year's worth of experience.  That's a year that will never be gained back and can mean less earnings than someone who had managed to stay employed.  The loss of savings can add up as well.  Spending a year reducing your savings instead of increasing it through investment can be a long term hit to one's saving goal.

The societal costs of lengthy unemployment is also high.  It can raise poverty, loss of labor hours that can't be regained, and a deteriorated workforce.

Long term or high unemployment can cause more people to slip into poverty.  The strain of poverty on a society is very high.  All the strains it puts would require it's own post to go into.  Just so highlight some of the thing.  Higher poverty often(not always) leads to increased crime, decreased opportunity, and bigger strain on government services.
The cost to society of unemployment isn't best measured in dollars and cents, it is best measured in hours lost.  Labor is a unique resource in that every hour it's not being used means that income is lost forever.  If someone is unemployed for a year, that means an entire year's worth of labor that could've been spent creating something or providing a service is now lost.

Finally, this is a problem economists and many employers have noticed.  The longer someone is unemployed, the more likely they will lose their effective work habits and experience.  The Fed recognizes this.  They said, "Long-term unemployment not only imposes exceptional hardships on the jobless and their families, but it also erodes the skills of those workers and may inflict lasting damage on their employment and earnings prospects."

So when someone is unemployed, not only are their lost hours of work gone forever, but when initially returning to work the person will sometimes be less effective then they were before.  To top it all off, an unemployed person will more likely need government assistance once they reach the poverty level.  That makes unemployment to be a very costly thing to a society.  One would think that we all would spend more time worrying about such a thing.
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