The Social Costs of Unemployment

By Morris, Alan | The Economic and Labour Relations Review : ELRR, December 2002 | Go to article overview

The Social Costs of Unemployment


Morris, Alan, The Economic and Labour Relations Review : ELRR


The last two decades have witnessed the unraveling of the Keynesian consensus and full employment that characterized the quarter century after World War II. Inequality and poverty have deepened and hundreds of thousands of Australians no longer have job security and are being intermittently or permanently shut out of the formal economy. This review article examines the social costs of unemployment focusing on The Price of Prosperity: The Economic and Social Costs of Unemployment (TPOP) edited by Peter Saunders and Richard Taylor.

The TPOP is an ambitious endeavour to quantify the costs of employment in a number of areas. Thus there are chapters on the impact of unemployment on health, poverty, inequality, indigenous Australians, youth, the family, crime and urban neighbourhoods. The chapters are consummate reviews of major Australian and international studies on the impact of unemployment, making the book a key text. The emphasis in the reviews is overwhelmingly on quantitative studies, premised perhaps on the notion that a quantitative approach is more likely to influence policy-makers. The limited focus on qualitative studies or studies that combine methodologies weakens rather than strengthens the book. The voices of the individuals, families and communities who bear the devastating brunt of unemployment need to be heard.

The article broadly follows the themes of TPOP. The first part examines the link between unemployment, poverty, increasing inequality and social exclusion. This is followed by an investigation of the impact of unemployment on the city and neighbourhoods. Unemployment and its influence on health is then assessed. The social cost of unemployment on youth and the family and indigenous Australians is subsequently investigated. The article concludes by examining the relationship between crime and unemployment.

Unemployment, inequality, poverty and social exclusion

The current president of the Australian Council of Social Services (ACOSS), estimated that at the beginning of 2003 about 2 million Australians lived in poverty--the main cause being unemployment (McCallum, 2003). The impact of unemployment on poverty, income inequality and social exclusion is reviewed by Peter Saunders in TPOP. Saunders refers to three important Australian studies that illustrate the relationship between unemployment and poverty. Harding and Richardson (1998) found that the poverty rate 'among the unemployed (was) 14 times greater than among wage and salary earners' (Saunders, 2002: 181). In a 1992 study, Paul and Podder concluded that for families the chances of being poor increases by 10 to 20 times if the family head becomes unemployed (ibid). Saunders quotes his own 1996 study which found that income units that are headed by an unemployed person are almost ten times more likely to be poor.

State policy plays a central role in determining whether unemployment leads to poverty and how deep this poverty is. Li some OECD countries, because of generous, wage-linked social security payments, the relationship between unemployment and poverty is negligible or much weaker than it is in Australia. Saunders gives the example of Finland where between 1991 and 1993, when unemployment rocketed from 3.2 per cent to 16.3 per cent, generous social security payments ensured that poverty rates did not increase (Saunders, 2002: 180). The Australian government is passionate that unemployment benefits be limited so as to discourage welfare dependency. This has not always been the case. Michael Raper, the former chairperson of ACOSS, concludes that the 'small amount of income that unemployed people receive is a key reason why poverty rates among unemployed households have grown dramatically over the past 25 years. Li 1972-3, 20% of unemployed households were living in poverty. The rate in 1996 was 60%' (Raper, 2000: 3).

Saunders does not discuss unemployment benefits in Australia or research that investigates the lives of families dependent on unemployment benefits. …

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