What is unemployment?
Unemployment is a economic scenario whereby a proportion of the workforce is actively searching for employment but are unable to find work. Whilst unemployment can be broken down into various scenarios (e.g. frictional, seasonal, structural etc.), the main overriding cause of most unemployment is a deficiency in aggregate demand – this can then be divided into these sub-causes:
Cyclical changes in domestic and international economic activity is also a factor that can cause unemployment. Due to the fact the demand for labour is a derived demand (as it is needed for the demand for productive output to be supplied), any decline in AD could result in a rise in cyclical unemployment.
Structural changes in consumption and production can cause the level of structural unemployment in the Australian …show more content…
The main overriding economic cost of unemployment in Australia is the opportunity cost of lost output and income. Real GDP will be lower due to being below full employment, and national income and living standards will go down in the medium-long term.
The unemployment and their families will suffer sever economic hardship due to a loss of market income, and social stigma as an externality of unemployment. Their level of consumption will in turn lower, due to loss of income in the short-medium term. But, if this phenomenon were to last longer, in the long term, unemployment can cause poverty traps and become intergenerational due to welfare dependency as an implication.
Unemployment also causes a loss of human capital in the short-medium term, as the unemployed won’t be contributing to the workforce; and in the long term, they will require re-training due to the fact that there is an inherent depreciation in the value of unallocated human capital (e.g. an unemployed secretary trained to use a typewriter is nowhere near ready to start working with a computer in the information