Unemployment Theories - Costs of Unemployment - Who pays?

Perhaps the main cost of unemployment is a personal one to those who are unemployed. However, if they suffer then the whole economy suffers. Individuals may become dispirited by unemployment, they may lose their self-esteem and confidence. This may affect their motivation to work. The longer they are unemployed the more they may lose their skills and this has to be bad for the economy as well. On top of that these problems (and financial ones) often lead to the unemployed being less healthy, and then the NHS picks up the bill. The whole economy suffers from people being unemployed.

As well as these microeconomic effects, there will also be macro effects. These will include:

• Loss of output to the economy - the unemployed could be producing goods and services and if they aren't, then GDP is lower than it could be.
• Loss of tax revenue - unemployed people aren't earning and they therefore aren't paying tax. The government has lost out.
• Increase in government expenditure - the government has to pay out benefits to support the unemployed. Along with the loss of tax this is a 'double whammy'.
• Loss of profits - with higher employment firms are likely to do better and make better profits. If they make less profit because of unemployment, they may have less funds to invest.

The answer then is - we all pay.