Unemployment

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Rising unemployment

Advantages

  • Some businesses will benefit as consumers switch spending from higher priced goods to cheaper substitutes e.g. Aldi, Domino's Pizza
  • It should be easier to fill job vacancies as the pool of available labour increases
  • Wages may be static or even decrease meaning lower costs so higher profits
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Rising unemployment

Disadvantages

  • Fewer people in work may mean less demand for goods and services and a fall in profitability
  • Businesses selling income elastic goods and services may see a bigger drop in sales as rising unemployment means less income for many people, so they will have less disposable income
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Falling unemployment

Advantages

  • More people in work should mean greater demand for businesses and increased sales and profitability
  • Businesses selling income elastic goods and services such as exotic holidays and designer goods are likely to benefit as falling unemployment means more income for many people
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Falling unemployment

Disadvantages

  • Sellers of cheaper substitutes may see sales fall as spending is switched back to higher priced goods
  • It may be harder to recruit workers as the pool of available labour shrinks
  • There is likely to be upward pressure on wages and other employment expenses meaning high costs
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Costs to the economy

  • Can be seen as an opportunity cost. The alternative is employment, whcih would contribute to our GDP. Unemployment represents a loss of potential output, growth and income
  • Benefits and financial aid unemployed people receive is a direct cost to the economy. It could be seen a an opportunity cost, because this money could have been used elsewhere, such in health or in education
  • Strain on our finances becuase the government is spending money on benefits and receiving less tax revenue. Unemployed don't pay direct tax (income tax) and because they are often on reduced incomes, they don't pay as much indirect tex (VAT)
  • Areas of high unemployment can sometimes lead to socail problems in terms of housing, education, health issues, crime and family problems. These social costs can lead to the need for increased government intervention and spending
  • It can exert a high personal toll on the individual in terms of depression and health problems
  • The long term unemployed often need greater help in finding work again, maybe retraining. Even is they have skills, they may lose their work habit and become discouraged
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