Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which consequence of unemployment is associated with loss of skills?

1. Loss of output

2. Social costs

3. Loss of human capital

4. Increased burden of welfare payments

The correct answer is: Loss of human capital

The consequence of unemployment that is associated with the loss of skills is the decline in human capital. Human capital refers to the collective skills, knowledge, and experience possessed by an individual, which contribute to their ability to perform labor and generate economic value. When individuals are unemployed for extended periods, they may not have opportunities to practice or develop their skills, leading to skill atrophy or loss. This deterioration can make it more difficult for these individuals to re-enter the workforce, as they may find that their previously relevant skills are outdated or no longer in demand. As a result, the overall productivity of the economy can decline, as a less skilled workforce is unable to contribute effectively to business operations. In contrast, while loss of output, social costs, and increased burdens of welfare payments are important consequences of unemployment, they do not directly address the issue of skill loss. Loss of output refers to the decrease in overall economic production due to fewer employed individuals, while social costs encompass the wider implications for the community and society, such as increased crime or health issues. The increased burden of welfare payments relates to the financial support that must be provided to the unemployed, reflecting an economic strain but not specifically pointing to skill deterioration.