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Module 1: Economics and employment

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Effects of unemployment

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XSIQ
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Economics - Effects of unemployment

Effects of unemployment

* _Personal costs._ Unemployed people often feel rejected and humiliated.
This can lead to stress, drug and alcohol abuse, and depression.

* _Social costs._ Social economists acknowledge that there is a direct
relationship between high unemployment and crime. Welfare agencies suggest
that there is also a direct relationship between unemployment and domestic
violence and family breakdown.

* _Inequitable distribution of income._ Higher unemployment means more
people are receiving transfer income and fewer people are receiving factor
income. This could increase relative poverty and exacerbate the 'haves and
have-nots' mentality.

* _Wasted productive potential._ High levels of unemployment indicate
that an economy is not achieving its productive potential. Also, as the
number of long-term unemployed (people unemployed for more than a year)
increases, skills are lost.

* _Budgetary problems._ High unemployment means large sums of money are
paid by the government in the form of unemployment benefits. At the same
time, high unemployment means less income tax revenue. Also, the government
may be forced to spend more on health, social welfare, law enforcement and
retraining schemes because of the associated problems with unemployment.
This often forces the government into a series of budget deficits that can
cause a number of economic problems, such as inflation and high interest
rates.

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