Unemployment is a serious problem when it occurs in any society. It means that a society has failed to fully utilise all of the human resources and labour that it has available. Unemployment is both a cause of poverty and a restraint on the growth of the economy. Understanding the causes of unemployment and how to solve them has been one of the major tasks of economics.
A condition of full employment would be one where every person actively seeking a job would be able to find one within a short amount of time. There would still be some unemployment as people transitioned between different jobs. Economists generally estimate unemployment during full employment as being at around 4 per cent. This rate has only rarely been reached since governments began to keep official records on unemployment. Without full employment, poverty will persist.
Long Term Unemployment
One of the many disadvantages of being unemployed is that the longer you remain without a job, the harder it will be to find one. Employers may hold it against job applicants if they have remained unemployed for a long time. They assume that there must be some reason why they remained unemployed. Also, the skills of a worker may become dulled by their not being fully used for a long time.
During an economic downturn, unemployment often becomes part of a vicious circle. Because their profits are down, employers cut back on their workforce. Because they're unemployed, former employees buy less, further hurting the general economy. Companies are then forced to cut back even further on their workforce. Unemployment insurance is meant to counteract this circle, in part by giving unemployed workers money that they can use to spend and put back into the general economy.
In addition to the money that is spent on unemployment benefits, governments also see other costs from unemployment. Various social welfare programs such as food-stamps and welfare see their costs rise as the unemployed seek to use them. At the same time, as the costs of government go up with unemployment, its revenues decline as the money taken in from taxes declines. Unemployment strains the resources of government from both sides, often causing a deficit.