Low unemployment
Another macroeconomic objective of the government is to maintain a low level of unemployment in the economy.
Unemployment refers to the number of unemployed people, defined as all people above a particular age, who are not working and who are actively looking for a job.
Underemployment refers to all people above a particular age who have part time jobs when they would prefer to have full time jobs or have jobs that do not make full use of their skills and education.
Unemployment rate= unemployed workers/total labour force
Cost of unemployment
Costs to the economy
- Unemployed labour means utilised factors of production. This will result in lower output for the economy.
- Long periods of unemployment would lead to deskilling of labour which will in return reduce potential output.
- Unemployment leads to greater disparities in the distribution of income.
Costs to the government
- Unemployed people will not pay taxes as they don’t have any running income. This will be a loss of tax revenue to the government.
- Unemployment benefits given out by the government to support the unemployed will result in extra burden on the government exchequer moreover, there is an opportunity cost involved as these funds could have been utilised for other development purposes.
Costs to society
- Higher unemployment leads to increased crime and vandalism. Moreover, there is a cost to the government of dealing with social problems resulting due to unemployment
Costs to individuals
- There are personal costs for the unemployed in terms of stress-related illness and family problems (family breakdown) caused by the strain of being unemployed.
- In order to meet daily expenses, an unemployed person may result in increased indebtedness
