What are the consequences of unemployment?

Unemployment is an economic, political, and social scourge that affects all socio-professional categories (employees, workers, and managers). These direct and indirect consequences concern job seekers, as well as employed workers, business leaders, and the competitiveness of businesses. The additional financial costs generated by unemployment and the fear of unemployment also contribute to widening the public debt of the state and the deficit of the health insurance fund.

What are the direct consequences of unemployment?

1. The first consequence of unemployment is the loss of purchasing power and household debt. By finding themselves unemployed, the employee loses 25% of his income, which decreases according to his duration. At the end of the entitlement, the unemployed person only receives the RSA (active solidarity income). If the household has taken out a mortgage and consumer loans, this loss of income can lead to over-indebtedness. The interruption of payment of drafts and credits triggers a recovery procedure, the seizure of property, and, ultimately, the eviction from the housing.

2. The second concern is the physical and mental health of the unemployed e.g. the identity, social status, and meaning of life of an individual being closely linked to the daily practice of professional activity. The long-term unemployment may cause a collapse of his personality and his mental balance. By being prolonged, this stressful and anxiety-provoking state can cause more or less serious diseases, such as insomnia, depression, cancer, etc., and sometimes lead to suicide. A 1997 study showed that a 3% increase in the unemployment rate could increase the suicide rate by 4.4%. Being more subject to cardiovascular and renal diseases (+ 50%), the mortality rate of an unemployed person increases on average by 75% compared to that of the active. According to studies that affirm that an increase of 1 million unemployed over 5 years causes 50,000 deaths and 60,000 cases of additional mental illnesses. These consequences encourage the unemployed more to find a job quickly than to take advantage of unemployment benefits and free time.

What are the indirect consequences of unemployment?

1. The first indirect consequence concerns the increase in delinquency and crime. Most of those convicted of theft, trafficking, or violence linked to unemployment. A study published in 2000 showed that one in seven prisoners had never worked and that one in two is or was a worker, compared to one in three in the general population. Faced with the difficulty of finding a job, a young person from disadvantaged backgrounds can, therefore, easily fall into delinquency. There is also a correlation between the rise in unemployment and the rise in delinquency. In the United States, a study has shown that a 10% increase in unemployment leads to a 4% increase in arrests, 6% in incarceration, 3.4% in economic crimes, and 0.8% in violent crimes. An increase of 1 million unemployed over 5 years is responsible for 14,000 additional criminal convictions. Unemployment being the main cause of delinquency, instead of increasing the number of prisons, the authorities should rather curb the rise in unemployment.

2. The second consequence concerns the impact of unemployment on employed workers. It is not just the unemployed who are affected by rising unemployment. It also concerns all employees who are “lucky to have a job”. The rise in unemployment maintains a climate of insecurity in the minds of employees who are afraid of losing their jobs. To avoid being unemployed, depending on their hierarchical level, the employee can use multiple avoidance strategies like submit to orders, contribute to the dirty job, accept the deterioration of their working conditions, compete with colleagues and not get involved in collective social demands. The fear of unemployment prevents social movements from mobilizing to fight against the deterioration of working conditions such as stagnant wages, flexibility, reform of the Labor Code, the breakdown of the social system, etc.

3. This submissive behavior causes a state of stress, which has repercussions on the physical and mental health of the employees. By agreeing to contribute to the dirty job, to intensify your work pace, the insecurity of a precarious job, the harassment of a boss, flexibility, unattainable goals, irregular and unpredictable schedules incompatible with a social and family life, etc. The employees are exposed to stressful situations and psychosocial risks. A report by the International Labor Organization (ILO) estimated that 40 million people were affected by work-related stress. While 36% said they were working very quickly, 33% said they were working at high speed. The same report indicated, on the one hand, that one in six workers, or 16%, had faced hostile social behavior (physical violence, sexual harassment, and harassment), and, on the other hand, that 80% of executives were worried about work-related stress, and that almost one in five saw violence and harassment as a major problem.

What are the consequences of unemployment on the economy?

Rising unemployment also has repercussions on the state budget. By causing both higher spending and lower tax revenues, rising unemployment is contributing to public debt. In order to calculate the cost, it is necessary to take into account direct and indirect costs.

The global annual cost of unemployment benefits would amount to € 45 billion. Since the direct cost of unemployment is € 174 billion. Direct costs do not include indirect costs linked to the social consequences of unemployment. Indeed, the increase in delinquency and incarceration, and diseases linked to unemployment and the fear of unemployment, provokes an increase in costs. According to a Canadian study dating from 1996, if the unemployment rate reached 10.4% of the population, its indirect cost would fluctuate between 5% and 12% of the GDP. If it reached 12%, this cost would represent € 253 billion, or 81% of state tax revenue. Indeed, to repair the damage caused by rising unemployment, the government must increase the budget of the Ministries of Labor and Employment, Social Affairs, Health, Justice, and the Interior.

The increase in delinquency increases the expenditure of the Ministries of Justice and of the Interior. Rising unemployment and the stress of fear of unemployment are also driving up spending on health. A 2013 study funded by the European Union estimated the cost of work-related depression borne by the social systems of European states at € 102 billion. The cost of health care was € 63 billion, and social benefits paid in the form of allocations amounted to € 39 billion. The rising costs of taking care of the physical and mental illnesses linked to unemployment and the fear of unemployment contribute to widening the deficit of the health insurance fund for the benefit of the pharmaceutical and health industries. Instead of attributing the deficit of the health insurance fund to the mismanagement of the social partners, it seems more judicious to attribute it to the rise in unemployment. 

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Author: Vicki Lezama