Social and Economic Costs of Unemployment

Unemployment contributes to extreme poverty and homelessness. Lack of income due to joblessness exposes people to financial challenges as they strive to meet living expenses with no pay. Although governments provide unemployment benefits, such support is not sufficient to sustain a household. After depleting borrowed money, an unemployed person may make sacrifices such as selling personal belongings. Other individuals are evicted after failing to pay rent, resulting in homelessness.

Unemployment fosters crime. Unemployed people, especially youths, might view crime as an alternative income source. Young men opt to join gangs and participate in gang-related activities such as drug distribution, extortion, and human trafficking. Involvement in crime increases the likelihood of an arrest and lengthy prison sentence. Unemployed parents lack money to send their children to school, causing them to miss education and a well-paying job in the future. Children from low-income families present an easy target for criminals to recruit.

Furthermore, unemployment drives women into prostitution. Involvement in prostitution exposes sex workers and their clients to sexually transmitted diseases such as HIV/AIDS, chlamydia, gonorrhea, syphilis, etc. These illnesses adversely impact the community’s health. HIV/AIDS rates are high in impoverished communities as sex workers prioritize money over their health. The human immunodeficiency virus attacks the body’s immune system, rendering a person vulnerable to illnesses.

Unemployment is associated with substance abuse and mental health problems including, stress, depression, and anxiety. For example, a university graduate is likely to suffer from depression after years of unsuccessful job hunting.  Mental health has become a crisis as millions of young people suffer psychologically due to the lack of job opportunities. Although multiple factors cause mental health problems, joblessness and subsequent financial challenges are among the primary causes. Suicide rates are high among the young unemployed population.

Unemployment hampers economic growth. Unemployed persons lack a disposable income to spend on goods and services, contributing less to the economy. Reduced goods’ demand forces manufacturing companies to scale down production, cut employee wages, and pay fewer taxes to the government. Unemployment undermines economic activities by curtailing money circulation. Moreover, unemployment slows economic growth by lowering gross domestic product. High unemployment creates a decline in the goods and services produced in a country as skilled workers are jobless and unutilized.

Moreover, unemployment causes the government to lose tax revenue. Employed people remit taxes, allowing the government to increase budgetary allocation on infrastructure and other development projects. In contrast, an unemployed population does not only fail to pay taxes but relies on government assistance. For example, the unemployment caused by the Covid-19 pandemic mandated governments to support unemployed persons through stimulus packages or other financial aid. The government losses substantial tax revenue when thousands or millions of its workforce are unemployed. It also losses revenue when manufacturing companies cannot produce and sell many goods due to unemployment.

Unemployment increases government expenditure. Governments support the unemployed by providing benefits, health insurance, housing, and food assistance. Providing these services increases government spending, and the situation may force states to borrow funds. Unemployment creates severe monetary problems for a government due to a decline in tax revenue and a rise in expenditure.

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