Discuss Whether Unemployment Is Bad for an Economy

Unemployment is the amount of people who are willing and able to work but do not have a job. Unemployment is considered detrimental for an economy because as a result lost output occurs. This means the economy is not at maximum output and thus not at full capacity. As illustrated in the graph there is also a negative output gap because people have less wealth, so have not as much income and thus there is less output and decreasing levels of growth. This is bad for an economy because if it does not grow then it is more vulnerable to a recession and unemployment will increase even more because people are not required to increase output. Thus, the government have dwindling economic growth which is not secure.

Capital goods

A

B

Consumer goods

Negative output gap

Also, unemployment is bad for an economy because it increases the budget deficit. This is when government spending is greater than the government’s income via taxes. As unemployed people do not pay taxes, because they don’t have a job, they do not contribute to the maintenance of the NHS and schools and other public services. This creates an opportunity cost for the government as they have to decide on what area(s) should receive funding as not all areas can get funding as there is not enough money. This means some services are less well maintained. In addition, unemployed people spend less so the government receive less VAT returns. This increases the opportunity