Importance Of Private And Social Cost Of Unemployment

How Private And Social Costs Of Unemployment Affect Country’s Economy From The Inside Losing a job can lead to a number of serious changes in a person’s life as most people depend on their labour earnings to keep afloat in today’s world. When workers get laid off not only they loose the source of income but also a sense of personal accomplishment. When you don’t have a job your standard of living falls and you feel anxious about your future. Unemployment does not only affect workers singularly but impacts on a country’s standard of living as well. The less workers are kept unemployed in the country the lower the level of GDP of this country becomes. Obviously, both private and social types of consequences should be analysed to outline the importance of the unemployment problem. But why do people need to know the costs of unemployment? It is essential to know if the profit from the reduction of unemployment cancels out the cost of accomplishing it and if it is possible to prevent the influence of

‘The Opportunity Cost of Unemployment’, which represents the social cost, is the value of goods and services that the person is able to produce. However, as long as the person is unemployed, this opportunity cost equals to zero and is called the ‘lost output’. Every ‘lost output’ lowers the standard of living for society as a whole, which outlines the negative effect of unemployment.

Moreover, there is ‘The Tax and Benefits Effect’. The effect is circulating when the unemployed do not pay consumption taxes and income taxes at the same level as if they were in employment. This causes the negative impact on tax revenue for the government. The more unemployment grows the bigger the tax impact becomes causing the government to deal with the social problems of the individuals caused by the job loss, such as drug and alcohol abuse and