Title: Effects of Unemployment | ROM Economics
Headings: Effects of Unemployment
Effects of Unemployment
What is unemployment?
What are its effects?
Key terms

Content: As a result, the output of goods and services in the economy, GDP, will be lower. This also has an impact on government taxation and spending and will negatively affect their finances. Higher welfare costs – Unemployment in an economy means that fewer people will be working and more people will be claiming benefits. More people claiming benefits creates a drain on the government’s finances and means they have to spend more on benefit payments and less on other areas of the economy – so there is an opportunity cost. Higher supply-side costs – With unemployment in an economy, more people won’t be working. These people need to be taught skills in order for them to be employable by firms. The government will have to spend more money on training the unemployed so that they have the right skills to be employed in a modern economy. This is also a drain on government finances and this money could also be spent elsewhere. On firms: Lower wage costs – Unemployment in an economy increases the supply of labour available for firms to employ.