What is unemployment?
An economic condition marked by the fact that individuals actively seeking jobs remain jobless. Unemployment is expressed as a percentage of the total available work force. When workers are unemployed, their families and themselves, and the country as a whole lose.
The unemployment rate is the The percent of people in the labor force who want a job but are not working.
The unemployment rate is the The percent of people in the labor force who want a job but are not working.
Who is in the labor force?
- Individuals above the age of 16
- Capable of working, and willing to work
- No institutional interventions such as jails, or hospitals
- Not be in the military, Army, Navy, Marines, Air Force, etc.
- In school full time, or retired
- Capable of working, and willing to work
- No institutional interventions such as jails, or hospitals
- Not be in the military, Army, Navy, Marines, Air Force, etc.
- In school full time, or retired
Types of unemployment:
1) Frictional Unemployment: "Temporarily Unemployed"
-Unemployment that is always present in the economy, resulting from temporary transitions made by workers and employers or from workers and employers having inconsistent or incomplete information.
-Example- (High school, College, and Actively looking for work)
-Frictional unemployment is transitional unemployment due to people moving between jobs: For example, redundant workers or people joining the labor market for the first time such as university graduates may take time searching to find the work they want at an acceptable wage or salary.
-Incentives problems can also cause some frictional unemployment as some people looking for a new job may stay out of work if they believe the tax and benefit system will reduce the net increase in income from taking work. When this happens there are disincentives for the unemployed to accept work – this is known as the unemployment trap
2) Structural Unemployment: Changes in the structure of the labor force, making skills obsolete. Workers DO NOT have transferable skills and these jobs will never comeback. Individual must learn new set of skills.
-Structural unemployment occurs for a number of reasons – workers may lack the requisite job skills, or they may live far from regions where jobs are available but are unable to move there. Or they may simply be unwilling to work because existing wage levels are too low.
-It is a well-known fact that everyday new products are being launched in the market. As a result, the demand for certain goods and services also changes. This leads to increase in unemployment rate in certain sectors of the economy and creates jobs in yet others. Under these circumstances, re employment may be possible if the worker relocates or migrates to other sectors (in demand).
Technological Unemployment: Type of structural unemployment where automation and machinery replace workers causing unemployment.
3) Cyclical Unemployment: Unemployment that results from economic down turns (recessions)
- The demand for goods fall, the demand for labor falls as well.
- Workers losing their jobs due to business cycle fluctuations in output, i.e. the normal up and down movements in the economy as it cycles through booms and recessions over time.
-Cyclical unemployment goes hand in hand with the business cycle. Higher the GDP, lower will be the cyclical unemployment at the peak of the business cycle and the vice versa is true when the economy is in the trough of the business cycle. If cyclical unemployment rate stretches for an extended period, it may cause irreparable damage to the labor force in the country.
Types of unemployment that are unavoidable: Frictional and Structural.
We are at full employment if we have only the natural rate of unemployment. This is the normal amount of unemployment that we should have. Full unemployment means NO Cyclical, 4% to 6% unemployment. NRU (Natural Rate of Unemployment)
-Unemployment that is always present in the economy, resulting from temporary transitions made by workers and employers or from workers and employers having inconsistent or incomplete information.
-Example- (High school, College, and Actively looking for work)
-Frictional unemployment is transitional unemployment due to people moving between jobs: For example, redundant workers or people joining the labor market for the first time such as university graduates may take time searching to find the work they want at an acceptable wage or salary.
-Incentives problems can also cause some frictional unemployment as some people looking for a new job may stay out of work if they believe the tax and benefit system will reduce the net increase in income from taking work. When this happens there are disincentives for the unemployed to accept work – this is known as the unemployment trap
2) Structural Unemployment: Changes in the structure of the labor force, making skills obsolete. Workers DO NOT have transferable skills and these jobs will never comeback. Individual must learn new set of skills.
-Structural unemployment occurs for a number of reasons – workers may lack the requisite job skills, or they may live far from regions where jobs are available but are unable to move there. Or they may simply be unwilling to work because existing wage levels are too low.
-It is a well-known fact that everyday new products are being launched in the market. As a result, the demand for certain goods and services also changes. This leads to increase in unemployment rate in certain sectors of the economy and creates jobs in yet others. Under these circumstances, re employment may be possible if the worker relocates or migrates to other sectors (in demand).
Technological Unemployment: Type of structural unemployment where automation and machinery replace workers causing unemployment.
3) Cyclical Unemployment: Unemployment that results from economic down turns (recessions)
- The demand for goods fall, the demand for labor falls as well.
- Workers losing their jobs due to business cycle fluctuations in output, i.e. the normal up and down movements in the economy as it cycles through booms and recessions over time.
-Cyclical unemployment goes hand in hand with the business cycle. Higher the GDP, lower will be the cyclical unemployment at the peak of the business cycle and the vice versa is true when the economy is in the trough of the business cycle. If cyclical unemployment rate stretches for an extended period, it may cause irreparable damage to the labor force in the country.
Types of unemployment that are unavoidable: Frictional and Structural.
We are at full employment if we have only the natural rate of unemployment. This is the normal amount of unemployment that we should have. Full unemployment means NO Cyclical, 4% to 6% unemployment. NRU (Natural Rate of Unemployment)
consequences of unemployment
- Lost output
Having people who are willing but unable to work is a waste of resources. A country is therefore not maximizing its output so living standards and international competitiveness is lower than what it ought to be. - Lost tax revenue
Unemployment means that there is a lower revenue gained from income tax. The potential tax revenue could be spent on improving healthcare or education. Such spending would increase the productivity of the country and the general living standards. - Government spending on benefits
Spending on job seeker’s allowance will go up the more people there are that are unemployed. This represents a larger opportunity cost which could limit the spending on key areas such as health. - Pressure on other forms of government spending
Greater unemployment may also lead to more crime or mental health problems, which requires more government spending to solve. - Costs to the unemployed
The unemployed may suffer from social disadvantages and will suffer from a loss of income. There may be increased arguments within households and/or a sense of worthlessness and aimlessness. Children of the unemployed will struggle at school because they may have less access to tools needed at home.
The significance of unemployment
Unemployment is only significant if it is at relatively high levels and if it lasts for a long time. If this is the case, governments will have to spend more money on providing benefits to combat this. This means that they are presented with a huge opportunity cost regarding budget spending.