definition of unemployment

7/27/2019 Definition of Unemployment

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Definition of Unemployment

byTejvan Pettingeron June 3, 2010 inunemployment

Unemployment is defined as a situation where someone of working age is not able to

get a job but would like to be in full time employment.

Note:If a Mother left work to bring up a child or if someone went into higher education,

they are not working but would not be classed as unemployed as they are not actively

seeking employment.

One grey area is voluntary unemployment. This occurs when the unemployed choose

not to take a job a the going wage rate (e.g. wrong job, benefits too high e.t.c) They

could be counted as unemployed because they are still seeking a job (they just dont

want to take one they are offered.

Measuring Unemployment.

Unemployment in the UK Is measured in two ways

1. Claimant Count number of people eligible for Job Seekers Allowance (note people

may be viewed as unemployed but not eligible for benefits)

2. Labour Force Survey A survey asking people whether they are out of work and

actively seeking workSee:Measuring unemployment

Types of Unemployment

Summary of Unemployment Types

Demand Deficient Unemployment. Lack of AD in economy (e.g. Recession)

Structural Unemployment workers lack necessary skills or geographical immobility

Real Wage Unemployment wages above equilibrium

Frictional unemployment workers in between jobs

Voluntary Unemployment. workers prefer not to work

Demand Deficient Unemployment. Demand deficient unemployment occurs in a

recession or period of very low growth. If there is insufficient Aggregate Demand, firms

will cut back on output. If they cut back on output then they will employ less workers.

Firms will either cut back on recruitment or lay off workers. The deeper the recession,

the more demand deficient unemployment there will be. This is often the biggest cause
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of unemployment, especially in a downturn. This is also known as cyclical

unemployment referring to how unemployment increases during an economic

downturn.

Diagram showing fall in AD and lower Output which leads to higher unemployment

Structural Unemployment

This is unemployment due to inefficiencies in the labour market. It may occur due to a

mismatch of skills or geographical location. For example structural unemployment could

be due to:

Occupational immobility. There may be skilled jobs available, but many workers may not

have the relevant skills. Sometimes firms can struggle to recruit during periods of high

unemployment. This is due to the occupational immobility.

Geographical immobility. Jobs may be available in London, but, unemployed workers

may not be able to move there due to difficulties in getting housing e.t.c. Technological change. If an economy goes through technological change some

industries will decline. This is likely to lead to structural unemployment. For example,

new technology (nuclear power) could make coal mines close down leaving many coal

miners unemployed.

Real Wage Unemployment / Classical Unemployment


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This occurs when wages are artificially kept above the equilibrium. For example,

powerful trades unions or minimum wages could lead to wages above the equilibrium

leading to excess supply of labour (this assumes labour markets are competitive)

Keynesian analysis suggests a fall in AD can lead to real wage unemployment as

wages are sticky downwards and a fall in AD doesnt lead to wages clearing.

Frictional unemployment

This occurs when workers are in between jobs e.g. school leavers take time to find

work. There is always likely to be some frictional unemployment in an economy aspeople take time to find a job suited to their skills.

Voluntary Unemployment.

This occurs when workers choose not to take a job at the going wage rate. For

example, if benefits offer a similar take home page to wage tax, the unemployed may

feel there is no incentive to take a job.

Other Concepts about Unemployment

Seasonal Unemployment. In certain regions, unemployment may be seasonal e.g.

unemployment rises in winter when there are no tourists.

Disguised / Hidden unemployment. Often unemployment statistics dont include

certain types of workers. For example, those put on incapacity benefit may not be

counted as unemployed, but, it may really be a type of structural unemployment.

See:Disguised Unemployment
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Natural Rate of Unemployment. This is the level of unemployment when the labour

market is in equilibrium. It is the difference between the labour force and those willing

and able to accept a job at going wage rate. It encompasses the different supply side

unemployment like frictional and structural unemployment. See:Natural Rate of

Unemployment

Under Employment. This is when people have a job but it is part time or temporary.

They would like to work full time, but only have a part time income.

Related

Costs of unemployment
http://www.economicshelp.org/macroeconomics/unemployment/natural_rate_unemployment.htmlhttp://www.economicshelp.org/macroeconomics/unemployment/natural_rate_unemployment.htmlhttp://www.economicshelp.org/macroeconomics/unemployment/natural_rate_unemployment.htmlhttp://www.economicshelp.org/macroeconomics/unemployment/costs.htmlhttp://www.economicshelp.org/macroeconomics/unemployment/costs.htmlhttp://www.economicshelp.org/macroeconomics/unemployment/costs.htmlhttp://www.economicshelp.org/macroeconomics/unemployment/natural_rate_unemployment.htmlhttp://www.economicshelp.org/macroeconomics/unemployment/natural_rate_unemployment.html

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