The devastating economic conditions of the 1930s, which at its depth saw one out of four workers unemployed, brought to the forefront the problems of unemployment and induced economists to develop theories to explain the unemployment and to suggest corrective policies. The reason that economists and policy makers have been and continue to be so concerned with unemployment stem from two key problems: personal hardships and lost production.

Personal Hardships

Many government programs and policies developed since the Great Depression have been designed explicitly to address personal hardships. One of the most noted programs is unemployment compensation, which is specifically designed to relieve personal hardships by providing workers with a source of income when they are unemployed. While other transfer payments (welfare and Social Security) are primarily designed to address other problems, they also provide a source of income to the unemployed.

The personal hardships suffered by the unemployed are of concern to government leaders for reasons that are both in the common good and somewhat more selfish.

• In terms of the common good, the unemployed are members of society just like everyone else and deserve the opportunities to enjoy the fruits of a productive economy. An affluent society "should" be able to provide for everyone. In addition, social problems that cause personal hardships to other members of society tend to increase with the personal hardships of the unemployed, including crime, divorce, suicides, etc.


• Government leaders are also concerned with the personal hardships of the unemployed for more selfish reasons. When the voting public is unhappy, they tend to elect new leaders and toss the old ones out of office. There are few things that voters like less than suffering the personal hardships that come with unemployment. Presidential elections have been decided on a few million votes. A typical business-cycle contraction can add four to five million workers to the ranks of the unemployed, enough votes to change the "employment" status of any incumbent President seeking re-election.

Lost Production

Lost production is especially troublesome because it is an opportunity that is lost forever. This lost production delays society's efforts to increase living standards and address the problem of scarcity. That is, when an unemployed worker does NOT produce output today, that output can never be recouped. If a worker is unemployed on Monday, Monday's production is lost forever.