Explain the types of unemployment and their negative effects on the economy.

PART B: SHORT ANSWER QUESTIONS

QUESTION 6:
Seasonal unemployment occurs when people are unemployed at certain times of the year because their jobs are dependent on seasonal factors, such as tourism, agriculture, or construction, which have peak and off-peak periods.

QUESTION 7:
Formal employment refers to jobs that are structured, regulated, and recognized by the government, offering benefits like social security, fixed wages, and legal protections. Informal employment, conversely, involves jobs that are unregulated, often cash-based, lack legal protection, and typically do not offer benefits or job security.

QUESTION 8:
Two negative effects of unemployment are:

• Loss of income and reduced living standards for individuals and their families.
• Decreased aggregate demand in the economy, as unemployed individuals have less purchasing power.

PART C: EXTENDED RESPONSE

Unemployment has several significant negative effects on an economy. Firstly, it leads to a loss of potential output and a reduction in the Gross Domestic Product (GDP). When a significant portion of the labor force is idle, the economy is not producing at its full capacity, resulting in fewer goods and services being available. This underutilization of human capital represents a direct economic cost.

Secondly, unemployment places a substantial burden on government finances. Governments often have to provide unemployment benefits and other social welfare programs to support the jobless, which increases public expenditure. Simultaneously, tax revenues decrease because fewer people are earning income and paying taxes, leading to larger budget deficits or reduced funds for public services. Lastly, high unemployment can lead to social instability and increased crime rates. Prolonged joblessness can cause psychological distress, poverty, and a sense of hopelessness among individuals, which can manifest as social unrest and a rise in criminal activities, further impacting societal well-being and economic stability.