Unemployment as a Social Issue

Introduction.

Unemployment is real issue in the modern society and has devastating impact on people’s lives. The effects are not limited to the unemployed individual but also family members and the wider community. As unemployment is time bound, with the duration of unemployment have far reaching effects even affecting the living standards in retirement 2. The loss of an income by a parent can potentially damage the prospects of the next generation. In additional to the personal impact, unemployment is a loss of valuable and productive resources to the economy.

The impact of job loss in rural and regional areas flows through the local community damaging businesses as family expenditure is capped and limited to bare minimum spending. This write-up evaluates financial, budgetary and economic impacts of unemployment on the society.

The financial, budgetary and economic effects of unemployment are profound. Many individuals who leave the workforce unwillingly do not have adequate resources for a comfortable and long retirement 3. Consequently, the price paid by society is increased income support, health and community support costs as well as the reduction in human capital. Entrenched unemployment results in a divided nation where individuals with jobs benefit from economic growth while those missing out are relegated to secondary status4. Secondly the economic loss the the individual and the family cannot be overstated. The treasury affirmed that in the short term unemployment significantly reduces a person’s income and in the long term reduces their ability to save for retirement and their goals5. This is primarily because the employer as well as the employee superannuation contributions are the lost and the capacity to save from disposable income is lowered.

Mission Australia, an NGO that facilitates retrenched people to find placement in new jobs reported that they had clients who could barely afford clothing for interviews, a telephone or transport to interview venues. Pep Employment Services argued that the lack of financial support for home owners/purchasers who are unable to pay their council rates often causes hardship. The lobby affirmed that some cases mature-age job seekers build up large council debts or face selling their home. Whereas pensioners receive a concession for rates, the unemployed do not. The US treasury indicates that income support generally replaces only a third of the net wages and superannuation benefits lost from work, a much lower replacement rate than exists in many other OECD country social insurance systems.

In addition, it is reported in several surveys that unemployment often impacts harder on those mature-age people who have significant ongoing financial commitments such as mortgages or rent, student education expenses and obligations to support dependents. The current trend to delay marriage as well as child bearing coupled with young peoples prolonged participation in education means that mature aged people still have dependent children, translating to significant financial responsibilities. The changes in income support policy requiring parents to provide more support for teenagers and young adults, for instance the notion of a Youth Allowance means that the period of responsibility for dependents is extended into the years where mature-age workers are most vulnerable in the labor market, not to mention that some also have aged parents that they care for. Subsequently, the economic impact is severe, not only for the individual but, as with social issues, with ripple effects for the family. Statistics show that over 300,000 children live in families’ dependent on unemployment benefits and there is evidence that about one-third of unemployed families live in poverty.

Moreover, a worrying long-term concern outlined by the Department of Family and Community Services (DFaCS) is the growth in dependency of mature-age people receiving income support, particularly over the recent period of improving job conditions for mature-age workers. Further, reliance on income support for prolonged periods for retirement is not in the best interests of the individual. It can culminate in erosion of their skills and their personal savings, it can increase marginalization within society and there is an increased risk of low incomes and poor health in retirement. Those workers whose children have departed from home and whose mortgages are reduced substantially are in a position to increase their savings significantly from the age of 45 as they become more aware of the approaching retirement. Others still have young dependents and significant financial commitment. The stated financial obligation of raising families and relative infancy coupled with the recent acceptance of compulsory termination arrangements are factors affecting people’s insufficient savings for retirement. The Treasury notes that as of 1986, only 40 per cent of employees were covered by superannuation and these tended to be higher income and white-collar employees.

Moreover, the treasury pointed out that the longer a person is unemployed, and the earlier they retire, the greater the adverse financial effect of unemployment. People unemployed later in life are less able to increase savings to make up the shortfall in expected retirement income and this loss is greater the earlier a person retires.17 Treasury provided an example: an individual on average earnings, unemployed for a year at age 64, would receive a gross retirement benefit around $9500 larger than someone in the same circumstances who was instead unemployed for a year at age 45. This reflects the additional interest accumulated over these nineteen years. The financial impact of unemployment is also influenced by the interaction of retrenchment and income support assets test. It has further been asserted that unemployed individuals have a greater usage of health services, such as higher hospital admissions, doctor and outpatient visits and significantly higher use of the pharmaceuticals, than their employed counter parts. Hence unemployment increases the cost of health services and other social security systems.

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