Making the labour market work better
A Capita/DfES case study

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Page 4: The costs of unemployment

Unemployment has several disadvantages.

  • It has an enormous social cost for individuals and communities.
  • It leads to a considerable waste of resources. For example, for approximately 20 years prior to the Second World War, unemployment averaged at least 10in this country with idle machines, factories and employees.
  • Rises in unemployment lead to falls in consumer spending. A small fall in consumer demand can lead to a much bigger overall change in incomes and spending. This cycle is known as the multiplier.
  • Unemployment imposes a financial cost on workers and the government. This is because the unemployed in the UK receive benefits which are financed from taxes. As the term of unemployment increases, people's work opportunities reduce and they, in turn, reduce their efforts to seek work and can become excluded from the labour market. This can lead to an increase in poverty and inequality.