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Implication of Unemployment

Unemployment has wide-ranging impacts on the economy and society. It leads to personal economic hardships through loss of income and potential homelessness. It also negatively impacts individuals' future job prospects and human capital development. For governments, unemployment increases spending on benefits and decreases tax revenue. Economically, unemployment reduces GDP by taking income out of the economy and lowering consumption. It can also increase social problems like crime. The COVID-19 pandemic has increased unemployment in many countries including Malaysia, exacerbating these negative effects.

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221 views4 pages

Implication of Unemployment

Unemployment has wide-ranging impacts on the economy and society. It leads to personal economic hardships through loss of income and potential homelessness. It also negatively impacts individuals' future job prospects and human capital development. For governments, unemployment increases spending on benefits and decreases tax revenue. Economically, unemployment reduces GDP by taking income out of the economy and lowering consumption. It can also increase social problems like crime. The COVID-19 pandemic has increased unemployment in many countries including Malaysia, exacerbating these negative effects.

Uploaded by

Mohd Shuaib
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3.0 Implications of unemployment on the Economy.

The national unemployment rate is defined as the percentage of unemployed workers in


the total labor force. It is widely recognized as a key indicator of the performance of a country's
labor market. As a closely watched economic indicator, the unemployment rate attracts a lot of
media attention, especially during recessions and challenging economic times. This is because
the unemployment rate doesn't just impact those individuals who are jobless. The level and
persistence of the factors of unemployment have wide-ranging impacts across the broader
economy. There is much implication that can happen of unemployment on the Economy
especially to personal, government and also to society.

Personal Implication Of Unemployment

- Loss of income to the unemployed.


Unemployment is one of the biggest causes of poverty in most countries in the world.
Workers who lose their job face a variety of hardships while unemployed. But beyond
the direct cost of job loss, its associated income loss, workers will tend to make less in
their next job as well. Prolonged periods of unemployment can push households into
debt and increase rates of relative poverty. Coming from unemployment, a worker is not
in a good position to select their optimal job nor to bargain for high wages once they
find a job.
- Potential homelessness.
While the literature on homelessness and unemployment is extensive, an analysis that
deals with both issues conjointly is limited. Most homelessness studies consider
unemployment as just one of several precipitating factors. Homelessness is a complex
and multi-dimensional problem (Wright-Howie 2003). Unemployment impacts homeless
persons particularly hard given that they are often facing numerous other challenges.
The lack of access to employment contributes to homeless people not having sufficient
and sustained income to meet basic needs
- Harm prospects.
Those who are unemployed will find it more difficult to get work in the future. When
individuals are out of work, their skills may erode through lack of use. That erosion or
“depreciation of human capital” increases as time passes, meaning that the potential
wages the unemployed can earn on finding a new job and even the chances of finding a
new job decrease the longer they are out of work.
- Lost human capital.
If people are out of work, they miss out on ‘on the job training’ This is a vital component
of human capital and labor skills. High rates of unemployment can reduce labor
productivity. If someone is out of work for two years, they miss out on the latest
working practices and trends. Being unemployed can also affect the confidence of the
unemployed and they become less employable in the future.

Implication Of Unemployment to Government

- Increased government borrowing.


Higher unemployment will cause a fall in tax revenue because there are fewer people
paying income tax and also spending less. Also, the government will have to spend more
on unemployment and related benefits. The government doesn’t just pay unemployment
benefit, but a family who has unemployment will be more likely to receive housing
benefit and income support.

Implication Of The Unemployment To Society

- Lower GDP for the economy


High unemployment indicates the economy is operating below full capacity and is
inefficient. This will lead to lower output and incomes. The unemployed are also unable
to purchase as many goods, so will contribute to lower spending and lower output. A
rise in unemployment can cause a negative multiplier effect. The economics research
arm of the Federal Reserve Bank of St. Louis explains “is intended to tell us how much
of a country’s gross domestic product (GDP) may be lost when the unemployment rate
is above its natural rate.”
- Increase in social problems
Areas of high unemployment (especially youth unemployment) tend to have more crime
and vandalism. It can lead to alienation and difficulties in integrating young unemployed
people into society. Unemployment itself is a rapidly growing social issue, plaguing the
citizens of the country, acting as the root cause of innumerable problems which further
emphasizes the severity of the issue and the urgency to ensure it is lowered and no
longer acts as a hindrance for the progress of the country and its people.
As we are now facing pandemic covid19 since December 2019 and this pandemic is
increasing from time to time, The government gives an order to all citizens to work from home
against pandemic covid19. Some employees having problems working from home and it is can
make them feel uncomfortable doing the job and indirectly, this matter will make them stress.
Besides, the performance also getting low because they cannot focus so it is can causes lack of
productivity among employees. Unable to use resources optimally can gives a negative impact
on output and causes wastage of resources.

To against covid19, the government made an order called MCO which is Movement
Control Order, many firms shutting down their operations for a while because they want to
reduce their spending and some of the firms are reduce their employees. In this case,
unemployment in Malaysia is getting an increase. Unemployed are unable to buy goods and
services that contribute less spending and income for a particular business to grow. The less
business grows, the less of GDP. Rise unemployment can cause a negative multiplier effect. The
effects of unemployment on the economy are equally severe, a 1% increase in unemployment
will reduce 2% in GDP.
References

Tejvan Pettinger, 2019. Economic Costs of unemployment. Retrieved from


https://www.economicshelp.org/macroeconomics/unemployment/costs/

Patrick Gleeson, 2019. The Overall Effects of Unemployment. Retrieved from


https://smallbusiness.chron.com/overall-effects-unemployment-37104.html

How the Unemployment Rate Affects Everybody. (2021). Investopedia. Retrieved from

https://www.investopedia.com/articles/economics/10/unemployment-rate-get-real.asp

‌Wiczer, D. (2017). Earnings Losses Through Unemployment and Unemployment duration.

Retrieved from Economic Synopses, 2017(13). https://doi.org/10.20955/es.2017.13

Steen, A., Mackenzie, D., & Mccormack, D. (2012). Homelessness and Unemployment:

Understanding the Connection and Breaking the Cycle. Retrieved from

https://www.sheltertas.org.au/wp-content/uploads/2015/03/Homelessness-and-

unemployment_Final-Report-20121.pdf

Nichols, A., Mitchell, J., & Lindner, S. (n.d.). Consequences of Long-Term Unemployment.

Retrieved from https://www.urban.org/sites/default/files/publication/23921/412887-

Consequences-of-Long-Term-Unemployment.PDF?source=post_page#:~:text=The

%20long%2Dterm%20unemployed%20also

‌Unemployment and Economic Growth: Okun’s Law. (2021). Investopedia. Retrieved from

https://www.investopedia.com/articles/economics/12/okuns-law.asp

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