Unemployment increases protectionism

The unemployment rate is open to interpretation depending on how it's measured. Underemployment can be extremely detrimental to the economy of society as well. Underemployment numbers include those who are working low-paying or low-skill jobs that don't provide enough full-time hours for benefits or to earn a living wage.

Global and national emergencies can trigger both unemployment and underemployment. Civilian employment plunged by 21 million from the fourth quarter of 2019 through the second quarter of 2022 due to the COVID-19 pandemic.1

The situation was so serious that the Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded unemployment benefits to self-employed and part-time workers through Pandemic Emergency Unemployment Assistance. It provided up to 39 weeks of benefits ending on or before Dec. 31, 2020

Unemployment imposes costs on a society that are more than just financial.

Unemployed individuals not only lose income but also face challenges to their physical and mental health.

There are societal costs of high unemployment.

Governmental costs go beyond the payment of benefits and include the loss of the production of workers which reduces the gross domestic product (GDP).

Unemployment affects not only the individual but also spouses, partners, and children.

There's often an immediate impact on an individual's standard of living when they lose their job. The average savings rate in the U.S. had been drifting down toward zero and sometimes below before the Great Recession. There are anecdotal reports that the average person is only a few weeks away from serious financial trouble without a paying job.34

Even those eligible for unemployment benefits and other forms of government assistance find that it's not enough because these benefits often replace only 50% or even less of their regular income so these people are consuming far less than usual. However, the economic consequences can go beyond just less consumption. Many people will turn to their retirement savings in a pinch and draining these savings has long-term ramifications.

Prolonged unemployment can lead to an erosion of skills, robbing the economy of otherwise useful talents. The experience of unemployment can alter how workers plan for their futures. Prolonged unemployment can lead to greater skepticism and pessimism. The absence of income created by unemployment can force families to deny educational opportunities to their children and deprive the economy of those future skills.

Last but not least, there are other costs to the individual. Studies have shown that prolonged unemployment harms workers' mental health and can worsen physical health and shorten lifespans.56

The social costs of unemployment are difficult to calculate but no less real. There are often increased calls for protectionism and severe restrictions on immigration when unemployment becomes a pervasive problem.7 Protectionism can not only lead to destructive retaliation among countries but reductions in trade also harm the economic well-being of all trading partners.