The Types & Consequences of Unemployment (Cambridge (CIE) IGCSE Economics): Revision Note

Types of unemployment

• There are specific causes of unemployment

• Understanding the cause is helpful as each cause may require different solutions to be implemented

Types of unemployment

The consequences of unemployment

• Unemployment can have serious impacts on individuals, producers/firms, the government, and the wider economy

  • The effects are often connected

    • For example, a loss of income for individuals reduces spending, which lowers firms’ sales, leading to lower tax revenue for the government

• The effects of unemployment, especially long-term unemployment, are extremely damaging

Impact on individuals

• Loss of income

  • Unemployed people cannot earn wages, reducing their ability to buy goods and services

• Sense of failure

  • Being without work can harm self-esteem and confidence

• Health issues

  • Physical and mental health can suffer due to financial pressure and inactivity

• Mental instability

  • Anxiety and depression can increase during long periods of unemployment

• Marital breakdown

  • Financial stress can lead to relationship problems

• Stress and suicide

  • Extreme cases of unemployment-related stress may lead to suicide

Impact on producers/firms

• Loss of sales revenue

  • Unemployed consumers spend less, reducing firms’ income

• Loss of output

  • Fewer workers mean lower production levels

• Lower skill levels

  • If unemployment lasts a long time, workers lose skills, reducing the quality of the labour force

Impact on government

• Increased spending on benefits

  • More people claiming unemployment or welfare payments

• Lower tax revenue

  • Less income tax, corporation tax and sales tax is collected

• Increased spending on retraining

  • Governments may need to fund programmes to help people back into work

Impact on the economy

• Increased crime and vandalism

  • Unemployment can lead to higher crime rates due to financial desperation or social unrest

• Increased anti-social behaviour

  • Frustration and exclusion from the labour market can cause social problems

• Increased homelessness

  • Without income, some people may lose their homes