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Unemployment Effects on Lithuania Individuals Research Paper


Introduction

Unemployment is a situation where individuals who are actively looking for jobs are not able to find work (Boyes and Melvin 47). Unemployment is often measured in terms of the percentage of the labor force that is not employed. This measure is used to evaluate the economic health of a country. Unemployment is undesirable because of its negative effects on individuals, cities, countries, and economic blocs.

A high unemployment rate is associated with poor standards of living and low economic growth. In Lithuania, the unemployment rate rose from 5.3% in 2008 to 13.6% at the end of 2009 (World Bank).

However, the rate reduced to 11.3% in 2013. The reduction is attributed to the efforts made by the government to resuscitate the economy through export promotion and improving efficiency in the public sector. This paper will focus on the effects of unemployment on individuals in Lithuania.

Effects of Unemployment

Economic Effects

One of the major effects of unemployment is lost income. Limited access to income greatly reduces the purchasing power of the unemployed (Gupta and Mandal 63). As a result, they cannot afford basic needs such as food, clothing, and shelter. This leads to a significant reduction in the standards of living and quality of life.

During the 2007/ 2008 global financial crisis, most of the people who lost their jobs had to depend on the financial support that was provided by the government to make ends meet. However, the government provided limited support since it focused on implementing austerity measures to reduce public debts (Giulietti, Guzi and Zimmermann 24-38). As a result, most of the unemployed had difficulties in accessing basic needs.

Lose of income during unemployment also increases the risk of defaulting on loans (Boyes and Melvin 78). Since the unemployed have no regular income, their ability to service their loans is very limited. For instance, thousands of low-income earners in the country lost their homes during the recent global financial crisis because they could not repay their mortgages.

Undoubtedly, unemployment is one of the major causes of poverty in Lithuania. Oftentimes, the unemployed are forced to sell their properties and investments in order to meet their financial requirements.

Once the proceeds are used for personal needs, the unemployed are left in a poorer state than they were before losing their jobs (Rossana 82). Poverty is perpetuated by the fact that the unemployed can hardly access funds from lending institutions such as banks to start their businesses.

The economic effect of unemployment on individuals is influenced by the general state of the macroeconomic environment and the availability of social safety nets. In Lithuania, the low inflation rate of 0.4% reduces the economic burden of unemployment by making basic goods and services to be affordable to the unemployed (World Bank). In 2013, the country’s GDP grew by only 3.4%.

This low economic growth rate limits job creation, which in turn reduces the ability of the unemployed to find work or to access support from relatives (Rossana 112).

However, the unemployed who have adequate savings and income generating investments can maintain a high purchasing power and acceptable standards of living. Similarly, the negative effects of unemployment are likely to reduce if the government improves its financial and non-financial support to the unemployed.

Psychological Effects

Unemployment is a major cause of psychological problems and mental diseases in nearly all countries. In Lithuania, “the unemployed are twice as likely as their employed counterparts to experience psychological problems such as depression, anxiety, and stress” (Altindag 1-20).

These psychological problems are attributed to several factors that are associated with unemployment. For example, the financial burden that the unemployed have to grapple with is a major source of stress. People who are not sure of earning any income have to worry about their future. As a result, they develop high-stress levels, which eventually lead to depression.

Social factors such as divorce and losing custody of children also cause psychological problems among the unemployed. Research indicates that the unemployed are likely to lose custody of their children or to be abandoned by their spouses due to their limited ability to support their families (Altindag 1-20).

Generally, psychological problems such as depression have negative health effects among the unemployed. This reduces the ability of the unemployed to engage in meaningful economic activities.

Lose of self-esteem is also a major psychological effect of unemployment. People who are not able to find jobs for a long time tend to perceive themselves as failures. In some cases, they are rejected by the community due to their inability to support themselves financially.

Loss of self-esteem reduces the chance of getting a new job (Gupta and Mandal 124). This happens when the unemployed fail to search for jobs because of their belief that they cannot succeed in the job market.

The people who are employed also grapple with the psychological effects of unemployment. For instance, during downsizing employees who retain their jobs are likely to develop stress if the future of their employment contracts is not certain.

Moreover, the employees who remain after the downsizing program often have low morale due to the interruption of their social and professional ties with their colleagues who are forced to quit their jobs (Gennard 451-454).

Health Effects

Unemployment is associated with negative health outcomes. The unemployed normally have limited access to healthcare due to financial constraints. Majority of the unemployed in Lithuania cannot afford health insurance (Boyes and Melvin 116). Also, most of them straggle to make cash payments to access medical services that are not financed by the government.

Substandard living conditions such as inadequate access to quality food and shelter also contribute to poor health among the unemployed. For instance, the unemployed who are homeless are likely to acquire respiratory diseases during the cold season because of sleeping on the streets.

Moreover, most of the people who are not employed depend on processed foodstuffs that have low prices and nutritional value. This exposes them to the risk of acquiring diseases such as obesity.

Poor health increases the mortality rate among the unemployed. Also, it reduces the productivity of the unemployed when they succeed to get new jobs. In some cases, employers reject job seekers who have chronic diseases to avoid high staff costs (Gennard 451-454). Thus, poor health often prevents the unemployed from getting jobs.

Professional and Career Development

Unemployment negatively affects career and professional development in Lithuania. It interrupts people’s careers, thereby denying them the opportunity to gain valuable work experience (Gennard 451-454).

Work experience is one of the major determinants of employment in Lithuania. Employers are interested in hiring people who are highly experienced to improve their competitiveness. Thus, people face difficulties in getting jobs after being unemployed for a prolonged period.

Unemployment also hinders career development through the loss of skills and knowledge. People tend to become ineffective in applying their skills and knowledge after being unemployed for a long time. This means that they have to be retrained whenever they get new jobs.

However, employers in Lithuania are focusing on reducing expenditure on staff development and training programs to improve their profitability (Gennard 451-454). Thus, they do not have the incentive to hire the unemployed who will require training before they can begin to create value for their companies.

Most people who are unemployed can hardly afford higher education (Gupta and Mandal, 128). As a result, they cannot go back to school to acquire advanced skills and knowledge in their areas of specialization. Unemployment also interrupts professional networks.

For instance, unemployed nurses are likely to lose their membership in professional organizations such as the Lithuania Nurses Association. Thus, they will not be able to access training and professional development opportunities through relevant professional organizations.

The unemployed often live in neighborhoods that are characterized by high poverty levels. Low-income neighborhoods have poorly funded schools and colleges, as well as transportation systems. Moreover, they have limited opportunities for gainful employment (Rossana, 153). These factors hinder career development by denying the unemployed the opportunity to improve their competence and to find jobs that match their skills.

Fiscal Costs

Unemployment reduces the amount of tax that the government of Lithuania can collect in a given financial year (Gediminas 134-145). The reduction is attributed to the fact that the unemployed do not pay income taxes.

Also, their limited expenditure on taxable goods and services results in a reduction in value-added tax. The overall effect of the reduction in tax revenue is an increase in the country’s budget deficit. The budget deficit affects the unemployed and the employed in the following ways.

First, the government has to increase taxes to reduce its budget deficit. During the 2007/ 2008 financial crisis, Lithuania’s budget deficit exceeded 3% of its GDP. As a result, the government responded by increasing the value-added tax to 21% in 2009. Moreover, the government increased “income tax, as well as excise duty on fuel, cigarettes, and alcohol” (Gediminas 134-145).

The increase in income tax reduced the disposable incomes of those who were employed. On the other hand, the increase in the value added tax and excise duty increased the prices of various goods and services. As a result, people had to reduce their daily budgets in order to live within their means.

Second, an increase in budget deficit leads to a reduction in public expenditure. In 2009, the government had to reduce the salaries of those who worked in the public sector (Gediminas 134-145). Also, it reduced expenditure on social safety net programs such as funding higher education and providing subsidies to farmers.

These austerity measures reduced the quality of life in the country. Moreover, the pay cuts negatively affected the financial stability of employees in the public sector. In a nutshell, the financial burden associated with the high unemployment rate has to be borne by both the employed and the unemployed.

Social Costs

Empirical studies have shown that unemployment has a positive correlation with a crime in Lithuania. Specifically, an increase in unemployment often leads to an increase in crime rate in the country (Altindag 1-20). For instance, during the economic downturn in 2009, the number of criminal offenses in the financial sector rose by 47%.

Similarly, the criminal offenses “that are related to possession of narcotic or psychotropic substances increased by 19%” (Gutauskas and Romeris).

Currently, the high unemployment rate is one of the major factors that account for the increased circulation of counterfeit currency and securities in the country. By 2015, the shadow economy is expected to account for at least 20% of the country’s GDP if the unemployment rate remains high (Gutauskas and Romeris).

Some of the people who are unemployed are forced to turn to crime as an alternative source of income (Rossana 156). For instance, conducting illegal businesses in the shadow economy is a way of making quick money while avoiding taxation and regulatory costs.

Increased use or possession of narcotic substances among the unemployed is partly explained by the high stress or depression that they normally experience. The youth who account for the largest proportion of the unemployed are the most active in criminal activities.

The high crime rate hurts both the employed and the unemployed. The employed have to live in fear of losing their properties or money through fraud or theft. Also, several people are likely to lose their lives if criminal gangs decide to use violence to commit a crime. The unemployed who engage in crime are also facing the danger of losing their lives or being jailed for a long period.

Access to Public Goods and Services

Unemployment reduces access to public goods and services such as education, healthcare, and recreational facilities. The unemployed have a lot of time to spend on leisure. As a result, they are likely to enjoy using public parks and other recreational facilities at the expense of the people who work and pay for the maintenance of the facilities through taxation.

Moreover, unemployment increases dependence on public hospitals and schools. The resulting capacity constraint prevents thousands of citizens from accessing healthcare through public hospitals or learning in public schools.

The revenue constraints that the government normally faces when the unemployment rate is high limits its ability to provide adequate and high-quality public goods and services (Gediminas 134-145). As a result, the quality of life or the standards of living in the country reduces.

Conclusion

Unemployment continues to be a major problem in Lithuania. The major effects of unemployment on individuals include loss of income, increase in psychological problems, and poor health conditions. Unemployment also increases the crime rate, thereby exposing citizens to the risk of losing their lives and properties. Thus, the government should consider the following recommendations to reduce unemployment in the country.

First, the government should focus on implementing economic stimulus programs to promote the creation of jobs in the private sector. Second, investments in the Entrepreneurship Promotion Fund should be increased to enable more people to access credit to start their businesses.

Finally, the government should use regulatory and tax incentives to motivate the private sector to create jobs. A reduction in the unemployment rate will improve the standards of living and increase the country’s GDP.

Works Cited

Altindag, Duha. Crime and Unemployment: Evidence from Europe, Auburn: Auburn University, 2011. Print.

Boyes, William, and M. Melvin. Macroeconomics, London: Palgrave, 2012. Print.

Gediminas, Davulis. “Global Crisis and Economic Processes in Lithuania and othe Baltic Countries.” Business Systems and Economics 2.1 (2012): 134-145. Print.

Gennard, John. “The Financial Crisis and Employee Relations.” Employee Ralations 31.5 (2009): 451-454. Print.

Giulietti, Corrado, Martin Guzi and Klaus Zimmermann. “Unemployment Benefits and Immigration: Evidence from the EU.” International Journal of Manpower 34.1 (2013): 24-38. Print.

Gupta, Keish, and A. Mandal. Macroeconomics, New York: McGraw-Hill, 2008. Print.

Gutauskas, Aurelijus, and M. Romeris. Lithuania’s Economic Crisis Leads to Crime and Social Disparities 2009. Web. 20 April 2014. <http://www.vilnews.com>.

Rossana, Robert. Macroeconomics, New York: John Wiley and Sons, 2011. Print.

World Bank. Data Bank 2013. Web. 20 April 2014. <http://www.worldbank.org>.

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