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Unemployment Causes and Consequences

Manali Oak Mar 12, 2020
What are the types and reasons of unemployment and how does it affect the individual and the society? This Story discusses the causes and consequences of unemployment.

The number of unemployed around the world is around 197 million.

Considering the unpredictable nature of the economy, unemployment is something we may have to face at any point of time in our careers. 
The inflating world population, its mismatch with the number and kind of work opportunities available, and a decrease in the size of the educated class results in an economic imbalance, which is an important cause of unemployment. The closing down of businesses, or their reduced needs of manpower are among the other reasons.
Apart from adding to the economic imbalance, unemployment leads to stress and dissatisfaction in the jobless and their families. Circumstances force people to remain unproductive, in spite of their capability to work. This has adverse effects on society. In the Story ahead, we will look at the causes and consequences of unemployment.


According to the Keynesian economic theory, unemployment results from insufficient effective demand for goods and services in an economy. If the demand for a particular good or service falls, companies produce less. This causes a decrease in the demand for workforce, leading to unemployment. In this case, a company may reduce its employees or file for bankruptcy. This is known as demand deficient unemployment.
When businesses experience a growth in demand for their products, they need workforce. This brings in a period of increased employment. When businesses experience a decline in demand, their need for workers reduces. This leads to cyclical unemployment.
Some believe that structural problems and inefficiencies in the labor market cause unemployment. Not being able to learn the skills or technology required for a job role or being unable to move to a different job location can lead to structural unemployment.
Also, regulations like minimum wage laws imposed on the labor market lead to unemployment.
When the law of demand and supply is not applied in case of employing people, unemployment results. A decline in the demand for products or services of a company does not reflect in the wages of its employees. This may strike an imbalance in the economy.
When a person moves from one city or country to another, it may take him some time to find a new job. If he quits his job for a personal reason or because it does not suit his skills, he has to remain unemployed till he finds a new one. This is known as frictional unemployment.
A temporary period of unemployment may be caused by a seasonal production of certain goods. For example, agricultural and mining activities may not be carried out throughout the year, which means, those working in these sectors will be unemployed seasonally.
People may choose to remain unemployed for various reasons. Ideally, those who are not looking for work are not considered as 'unemployed'. Only those looking for a job but not being able to acquire one, can be classified as unemployed.
Those who are of the working age but have stopped looking for work due to reasons like reduced motivation, are not counted in the unemployment statistics. This can be regarded as hidden or covered unemployment. It means the number of unemployed is always more than what is shown in the statistics.
During a period of recession, some companies may lay off employees and others may reduce or completely stop recruiting people, leading to unemployment.
Businesses may have other reasons for reducing employees, such as the shutting down of a particular division or new technology reducing the amount of workforce needed.
If a company can obtain cheap labor from another country, it results in unemployment for the natives. For example, Chinese and Indian people are taking up jobs in the US. Companies are benefiting from having to pay relatively lesser salaries to workers from these countries. But this can affect the employment opportunities that Americans have.
An increase in the taxes imposed on companies in certain countries, may lead the businesses to move out of that country. This may lead to job cuts of people employed by these companies.


Unemployed individuals have to go through an economic crunch. They are unable to meet their financial obligations. This may lead to a decline in their standard of living. Unemployment also hampers their economic and social status.
The consequences of employment can be as grave as homelessness due to failure to repay home loans or pay house rents.
Underemployment is one of the serious consequences of unemployment. On losing jobs, people are forced to take up work that does not befit their skills, experience, and educational qualifications.
The other consequence of unemployment is increased levels of anxiety and stress in the jobless. The inability to get a job gives them a feeling of failure, leading to low self-esteem. They may lose interest in living and even have suicidal thoughts.
The responsibility of their families (children's education, medical expenses of family members, etc.) burdens them further, leading to increased levels of frustration. Joblessness may lead to depression and other psychological problems.
Long periods of unemployment cause the jobless to lose hope. Lacking financial support, not being able to provide for their families, and inactivity makes them feel all the more helpless. This state may lead to a decline in their overall health (physical and mental).
Effects of unemployment are not limited to the individual. Even families of the unemployed have to suffer because of the reduced spending capacity and inability to meet financial obligations. Due to less or no inflow of money in the house, the family may not be able to afford even the necessary expenses, such as those to be made on food, health, and education.
Immediate family members of the unemployed may also experience similar effects on health, such as stress, anxiety, and loss of hope. Effects of unemployment on families also include problems in relationships.
Unemployment leads to less affordability. Lack of funds in case of the unemployed, and fear of job loss in others, results in reduced expenses. The decrease in the spending capacity of people has a negative effect on the economy. The drop in people's spending power directly leads to less consumption of resources. People buy less and invest less. If this continues for long, it may cause an economic decline.
The worsening economic condition of the unemployed has adverse effects on society. It leads to feelings of insecurity in people. The poverty and hardships may lead the masses to lose trust in the government. This may lead to political instability.
Due to absence of income and the building frustration, crime and violence rates may increase.
Prolonged periods of unemployment make people pessimistic. Being jobless for a long time is worse than we think it is. It is a state of being unable to use one's skill and will to work and earn money. It is a condition in which one is unable to use his talent and ability for productive purposes. It spells incapacity to generate wealth. The absence of income and the lack of opportunities has a negative effect on the individual, the economy, and the society as a whole.
Unemployment benefits serve as a support during the period of unemployment. One can claim them if he has been forced to quit his job. Truth is that these benefits are a temporary relief from joblessness. The real solution to unemployment can be found only through a careful analysis of its causes.
If it is seasonal or structural or till it has affected only a few, it is relatively easy to save the situation. But when unemployment is prolonged or has affected a majority of the population, reversing its negative impact on society is a challenge.