How Unemployment Affects Individuals and the Economy

Updated August 8, 2022

Individuals who are unemployed are often more susceptible to several challenges, including difficulty in finding future employment and decreased income. Unemployment also impacts society and the economy as a whole. The longer a person is unemployed, the more likely they are to experience potential negative effects and contribute to the multiplier effect that unemployment has on the community.

In this article, we explore what it means to be unemployed and the effects that unemployment has on an individual, society and the economy.

What is considered unemployment?

Individuals who do not have a job are considered unemployed. This includes not having either a part-time, full-time or independent contractor position. People who are actively looking for work and are currently available for work but do not have a job are also considered unemployed.

Additionally, individuals who are on a temporary layoff are considered unemployed, even if the individual is expecting to be rehired for the same position.

The government has devised a series of questions to gauge whether a person is unemployed. Examples of these questions include:

Last week, did you perform work for pay?
Last week, did you have a full-time or part-time job?
Last week, were you laid off from a job or on layoff from a position?
If you are on layoff from your job, has your employer given you a date to return to your position?
Have you made an effort to find work in the last four weeks?
What have you done to find work during the last four weeks?
Last week, would you have been able to start a new job if it had been offered?

These questions are used to obtain an accurate understanding of a person's labor force activities to determine whether they are truly unemployed. The government uses this information to gather data about unemployed individuals' job characteristics and to keep track of total unemployment in particular geographical locations as well as throughout the country.

Effects of unemployment on an individual

Unemployed individuals are susceptible to experiencing several challenges. These challenges are exacerbated the longer a person is unemployed. Common disadvantages of unemployment for individuals include:

Reduced income

Unemployed individuals experience reduced income as a direct result of not having a job. Because a job provides wages for the person, being unemployed takes away these wages and leaves the individual with less available income.

People who are unemployed and do not have any other source of income often rely on their savings or borrowed money to fund essential costs such as food and living expenses. Unemployed individuals who are the primary worker in the family face even more difficulty, as they must come up with the money to account for not only their own needs but for the needs of their family members.

Health problems

Unemployment can also have a significant impact on a person's physical health. Being unemployed is a highly stressful situation, so it may cause stress-related health issues such as headaches, high blood pressure, diabetes, heart disease, back pain and insomnia. These health issues often result in increased visits to a doctor and increased use of medication to manage the health conditions.

Many people rely on their jobs to provide health insurance, so when a person is unemployed they likely do not have access to health care. Unemployment can also increase a person's risk of further declined health, as they often skip health-related appointments to reduce costs.

Unemployed people are also less likely to spend money on health-related expenditures such as a gym membership or healthy food. By skipping out on these preventative measures, individuals increase their risk of a decline in physical health.

Negative familial effects

Family members of an unemployed person are also at risk of the negative impact of unemployment. According to the Society for the Psychological Study of Social Issues, individuals who are unemployed have less family and marital satisfaction and increased family challenges compared to unemployed people.

The study also found that the stress of unemployment can negatively impact the well-being of spouses. Some studies have also shown that children of unemployed individuals make less on average than those of employed people.

Mental health challenges

Studies have shown that unemployment increases a person's risk for depressive symptoms. Another mental health challenge that unemployed individuals often face is anxiety. Unemployed people often have decreased mental health compared to those who are employed. Unemployed persons also often experience a higher number of poor mental health days than their employed counterparts.

Another study found that unemployment is associated with all the above mental health symptoms as well as psychosomatic symptoms, reduced subjective well-being and lower self-esteem. They found unemployed individuals to be twice as likely as employed persons to experience psychological challenges.

Effects of unemployment on society

The impact of unemployment also reaches out to the community and society in which the unemployed person lives. While one unemployed person will typically not have a significant impact on society, high unemployment rates in certain areas often lead to higher poverty rates and poorer neighborhoods that amplify the societal impact of unemployment.

Communities with high unemployment rates are more likely to have limited employment opportunities, low-quality housing, fewer available recreational activities, limited access to public transportation and public services and underfunded schools.

Effects of unemployment on the economy

In addition to effects on the individual and societal levels, unemployment also directly impacts the economy as a whole. According to the U.S. Bureau of Labor Statistics, when people are unemployed, they spend less money, which ultimately contributes to less contribution to the economy in relation to services or goods sold and produced.

Unemployed persons also experience a reduced purchasing power which can leave other individuals who create products that were purchased by these individuals without jobs as well.

Additionally, more than 70% of what the United States economy produces is purchased by consumers. Unemployed individuals consume much less than those who are employed, so a higher unemployment rate can leave the economy lacking in terms of products sold. This can leave organizations with decreased revenue.

Tips for unemployed individuals

While unemployment is a life stressor, there are several things you can do to decrease the negative impact this situation can have on you and your family. The following are a few tips to help you better cope with unemployment:

Don't deny your feelings

Being unemployed is a stressful situation that can cause many negative emotions to arise. While it may be tempting to avoid these feelings with unhealthy behaviors, dealing with them head-on is much more effective and healthy.

Allow yourself time to adjust to being unemployed, don't beat yourself up for your situation and look for the positive side whenever possible. Speaking with a counselor can also help alleviate some of the stress associated with unemployment.

Think of unemployment as a temporary setback

Rather than looking at unemployment as a permanent thing, try to see this situation as simply a setback that is temporary. This will give you the confidence and motivation to find a new job more quickly than if you view your unemployment in only a negative light.

Reach out to friends and family

Unemployed individuals often feel a sense of shame or embarrassment about their situation which often leads to isolation from friends and family. However, staying connected is essential to maintain motivation to find a new job and to promote a healthy mental and physical wellbeing.

Start networking

There are several available resources that give you the opportunity to network with professionals in the industry or field you're interested in. Making connections with professionals often leads to learning about new job opportunities and can even result in a job recommendation.

Take care of yourself

Unemployment often causes individuals to lose sight of their emotional, mental and physical well-being. However, taking care of yourself is essential in both the short and long term and will ensure you're capable of taking a new job when the opportunity arises. Get enough exercise and sleep and eat well to maintain your levels of positivity and energy.