How does unemployment effect the economy?

Effects of unemployment to the economy include recession, high government expenditure and wasted resources. High levels of unemployment not only affect unemployed people, but also the local and regional economies.

Unemployed people contribute less to the economy because they are spending less. They do not participate in paying tax due to lack of jobs. Consequently, the government ends up borrowing money because of low revenues and high spending. Rise in employment rates also affects other areas, such as quality of health services and living standards. This affects the society in general. In an economy with high unemployment rates, the hours lost by the unemployed are usually unrecoverable.