Unemployment imposes costs on all of us. Unemployment compensation eases the burdens of missed paychecks on most people who lose their jobs, but the resulting higher payroll taxes spread the cost of lost production across all workers and employers. The aggregate costs of unemployment fall into two categories: lost income and social costs.

 

Losses of Aggregate Income

The production lost because of unemployment is not trivial.

The lost-income costs of  unemployment consist of the value of the output the unemployed could have produced.

            Estimates of income lost because of the Recession of 1990–1991 range to $500 billion—about 8 percent of potential annual Gross Domestic Product in the United States. Even if the unemployed are partially buffered by unemployment compensation, society as a whole suffers because production falls when the jobless rate soars.

 

Table 2   Unemployment Patterns during Periods of Prosperity and Recession
	1973 Peak	1975 Trough	1981 Peak	1983 Trough	1988 Peak	1991 Trough
Total unemployment (all occupations)	4.9	8.5	7.6	9.8
Professional and technical	2.2	3.2	2.8	3.3
Government	2.7	4.1	4.7	4.9
Service	5.80	8.60	8.90	10.60
Blue-collar	6.2	14.7	12.2	17.7
Manufacturing	4.4	10.9	8.3	12.3
Construction	8.9	18.0	15.6	20.0
Source: U.S. Department of Labor, Monthly Labor Review, 1994.

Social Costs of Unemployment

            The social and psychic costs of unemployment may outweigh all the financial losses. Table 2 indicates that the burdens of unemployment are not spread evenly, but dry statistics cloud our understanding that real people stand behind these numbers. Consider the memories of a woman who was a college student during the Great Depression:

 

When I attended Berkeley in 1936 so many of the kids had actually lost their fathers. They had wandered off in disgrace because they couldn't support their families. Other fathers had killed themselves, so the family could have the insurance. Families had totally broken down. Each father took it as his personal failure . . . so they killed themselves. It was still the Depression. There were kids who didn't have a place to sleep, huddling under bridges on the campus. I had a scholarship, but there were times when I didn't have food. The meals were often three candy bars.[1]

 

            The self-confidence of workers who view their jobs as central to their lives may be crushed by extended unemployment. Joblessness also wreaks havoc with family structures. Families may exhaust their assets and go deeply in debt. Plans for college can go up in smoke. Teenagers suffer especially high unemployment rates.  All manners of crime tend to rise.(I BELIEVE THIS IS TRUE) Table 3 provides estimates of some human costs of unemployment. The social and psychic costs of long-term unemployment are major reasons the Employment Act of 1946 emphasized promoting full employment.

            Trauma from unemployment has been partially alleviated by higher unemployment compensation benefits, and partly by having more than one breadwinner in many families. Both spouses worked full-time in 1960 in only one-quarter of all families. More than half now have two wage earners—in 1993, in more than two-thirds of households where the husband was unemployed, another family member had a full-time job.

 

TABLE 3     Estimated Incidence of Some Social Traumas Caused by a 1 Percent Increase in Unemployment Rates Over a 6-Year Period
Social Trauma    (1993)	Incidence of trauma related to a 1% rise in unemployment
total mortality	48,325
Caucasian males	16,194
Caucasian females	21,662
non-Caucasian males	5,017
non-Caucasian females	5,452
cardiovascular mortality	26,518
cirrhosis of liver mortality	1,205
homicides	849
mental hospital admissions	5538
males	4,007
females	1,531
state prison admissions	4,375
Source: M. Brenner, "Influence of the Social Environment on Psychology: The Historical Perspective," in Stress and Mental Disorder, ed. J. Barrett (NY: Raven Univ. Press, 1979). Reprinted by permission. Updated to 1993 population by the authors

 

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