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Effects of Unemployment and Policies

Economics (Year 11) - Unemployment

Carys Brown

What happens when full employment is not met?

When the macroeconomic objective of full employment is not met, meaning the unemployment rate is above 4.5%, then there is wasted human resources. This means that skilled workers are not contributing to economy, and therefore, they are idle or wasted resources.

More broadly, when there is high unemployment rates, total household income falls as families are making less revenue. In turn, governments collect less tax revenue and must spend more on welfare initiatives.

Effects of High Unemployment Rates

  • Social Unrest: When the distribution of income is uneven there may be higher crime rates, vandalism and social unrest.

  • Loss of Income: Households incomes decrease and government payments are generally less than wages.

  • Loss of Self-Esteem: Many people may feel a lack of self-worth or purpose without a job.

  • Poorer Health: Due to financial stress, this can impact an individuals health and relationships.

Policies to Reduce Unemployment

Governments have many policies they can use to help those who are unemployed maintain a steady income and re-enter the workforce.

  • Lower Cash Rates (monetary policy): This works as it increases spending within the economy, therefore making more demand for products. This opens up new jobs.

  • Training: Developing skills makes workers more appealing to employees.

  • Welfare Payments: Given to eligible citizens that are unemployed. This supports people as they move between jobs.

Governments will use these policies and more in order to reach full employment while still considering inflation rates and economic growth.

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