The effects of not achieving a goal of Full Employment (High Unemployment)

An Australian government not achieving full employment (4-5% rate of Unemployment) will lead to more unemployment than expected. This will reduce living standards in the following ways: The Effects of Unemployment

Lower Disposable Income– as a result of unemployment there is a overall reduction of disposable income in the economy as people lose their jobs. This leads to reduced demand for material goods and a lowering of living standards for people unemployed.

The Effects of Unemployment Lower Production Levels– Unemployment means people lose their jobs and this can result in less productive capacity in the economy as labour resources are not being utilised at the maximum of the production possibility frontier. Material living standards suffer.

The Effects of Unemployment Lower Inflation – This could be a beneficial effect because more unemployment and less demand will reduce inflation in the economy, both demand inflation and cost inflation. However, the social and political consequences can outweigh the benefits to the reduction in Inflation.

The Effects of Unemployment Reduced Government Finances– higher unemployment results in more government payments for social security to provide a basic income for unemployed people. This results in money being taken from G1 or G2 to pay for these payments or governments borrowing heavily to finance the extra payments and resulting in a budget deficit, which is placed on future generations to pay and their future living standards.

Government revenue from taxes also falls as more people are unemployed causing a strain on budgets. The Effects of Unemployment