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

Content: Unemployment in an economy has many impacts on the government, firms and, of course, the unemployed people themselves. On the government: Fewer tax revenues – Because fewer people are working, there will be fewer people earning enough income to pay tax. As a result, the government will receive less tax revenue and this will have a large impact on the government’s finances. Lower economic growth (GDP) – As fewer people have jobs, firms won’t be able to produce as many goods and services. 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.