Cambridge International as and a level Economics Ebook

The consequences of unemployment
Unemployment has consequences for the unemployed 
themselves, fi rms and the economy as a whole. Workers 
who lose their jobs are likely to experience a fall in 
income. Th
ey are likely to fi nd it more diffi
cult to get 
another job the longer they have been out of work. Th
is 
is because they will miss out on training, will get out 
of touch with advances in technology and may lose 
confi dence. Th
ey may also experience a decline in their 
physical and mental well-being. For a small number of 
Figure 9.12 
Cyclical unemployment
0
Wage rate
Quantity of labour
Q
X
ADL
1
ADL
1
ADL
ADL
ASL
ASL
W
Cyclical unemployment: 
unemployment that results from 
a lack of aggregate demand.
KEY TERM
242
Cambridge International A Level Economics

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people, there is a chance that a period of frictional or 
structural unemployment may give them the opportunity 
to search for a more rewarding job.
Firms wanting to expand may have a greater choice of 
potential workers. Th
ey may also benefi t from workers not 
pressing for wage rises for fear of losing their jobs. Th
ey 
may, however, suff er from lower demand for their goods 
and services.
Th
e economy will experience an opportunity cost. 
Output will be below its potential level. If the unemployed 
had been working, more goods and services would have 
been produced and living standards would have been 
higher. Th
e tax revenue received by the government will 
be lower than with a higher level of employment. If state 
benefi ts are paid by the government, there will be an 
increase in government spending on the benefi ts which 
could have been put to other purposes.