Unemployment is a problem because it can create losses of income, increases in expenditures and societal problems that negatively affect individuals and society as a whole. Costs generated by unemployment are considered dead losses as they do not create any gains or benefits.
At the individual level, unemployment has both immediate and long-term effects. In the short term, an unemployed individual faces a diminished standard of living due to a reduction or elimination of income. In the long term, individuals may also lose professional skills and suffer negative effects to both mental and physical health.
Prolonged unemployment can also cause a rise in protectionist and anti-immigration tendencies in society. A shift towards protectionist tendencies can result in a damaged or hampered economy. High rates of unemployment have also been observed to correlate with a rise in crime rates and lowered volunteerism. Individuals who have been unemployed for long periods of time may choose to engage in criminal activities to either fulfill financial needs or combat boredom.
Unemployment generally generates a financial cost to the country, as governments are forced to distribute higher amounts of unemployment benefits or food assistance. While the country's expenditure increases, its income also drops as it can no longer collect the same level of income tax, due to less of the population being employed.