Meaning of Unemployment – One of the major problems confronting every modern economy is that of unemployment. It is an economic condition in which the number of people who are willing and able to work but are without a job.
Unemployment is a stock concept measured at a point in time; it is an indication of the resources of the country that is presently unutilized.
Meaning of Unemployment
The meaning of Unemployment refers to a state in which an individual actively seeks employment but is unsuccessful. It is said to be one of the critical measures of the economy’s strength.
The unemployment rate is the most widely used method to determine a country’s unemployment rate. This can be found by simply dividing the number of people without jobs by the total population included in a nation’s labor force.
The implications of unemployment in an economy are grievous. First, it implies that the economy is operating at below full employment level in which case it means that the society is foregoing some potential output.
Second, it will increase the pressure on those who are presently working since they have to cater for their unemployed relatives or in some cases part of their taxes will be used to provide for the unemployed. Third, it could also lead to increment in social menace such as armed robberies, prostitution, etc.
How to Define Unemployment Rate
The definition of the unemployment rate assert that those looking for work are counted as unemployed; those who are not looking are counted as not in the labour force.
But when unemployment is high, many of those without jobs simply give up looking for work and thus are no longer counted as unemployed. These people are known as discouraged workers.
To take an extreme case, if all workers without a job gave up looking, the unemployment rate would equal zero, and the unemployment rate would be a very poor indicator of what is happening in the labour market.
This extreme case does not hold, but a milder version is present. Typically, high unemployment is associated with many workers dropping out of the labour force.
Equivalently, a high employment rate is typically associated with a low participation rate, defined as the ratio of the labour force to the total population of working age.
Since the start of economic reform in America and Europe in the early 1990s, unemployment has increased, often dramatically. But equally dramatic has been the drop in participation rates.
Types and Causes of Unemployment
In discussing the causes of unemployment, these are the useful kinds of unemployment;
1. Frictional unemployment
This is the amount of unemployment that is associated with normal turnover of labour.
It is unemployment that occurs in the course of leaving one job and finding another.
2. Structural unemployment
Structural changes in an economy can be a cause of unemployment.
The process of economic development implies changes in input and output mix.
While the demand for some products will be increasing, others will be decreasing.
However, it might take sometimes for workers who are laid-off in the declining industry to learn the required skills to cross over to the growing industry.
Essentially, structural unemployment thus occurs when there is a mismatching between the unemployed and the available jobs in terms of regional location, required skills, or any relevant dimension.
3. Deficient demand unemployment
Unemployment that occurs because there is insufficient aggregate demand to purchase full employment output is called deficient demand unemployment.
It is measured by the excess of the supply of workers looking for jobs over the number of jobs available.
It will be positive when there is deficient aggregate demand and negative when there is excess aggregate demand.
4. Search unemployment
This occurs among people who could find work of the type for which they are fitted but who remained unemployed in order to search for a better offer than they have received so far.
5. Seasonal unemployment
This results from seasonal fluctuations in demand for labour.
For example, employment in ice factories is only for the summer; similarly, ice-cream sellers remain unemployed during winter.
The same is the case with agricultural workers who remain employed during harvesting and sowing seasons and remain idle for the rest of the year.
Read Also: 4 Major Objectives of Macroeconomics
How to Control Unemployment
The best way to control unemployment is an understanding of the nature and causes of such unemployment.
In other words, one needs an understanding of the type of unemployment before appropriate control measures can be taken. For instance, frictional unemployment is inevitable in any economy.
However, any policy measure that makes moving between jobs easier and quicker can, however, reduce the volume of frictional unemployment somewhat.
Structural unemployment may be checked by policies of retraining and relocating labour as part of a general effort to facilitate the adjustment of labour supplies to changing patterns of demand.
Unemployment that is due to deficient aggregate demand can be resolved by increasing aggregate demand.
This can be done by any expansionary fiscal (e.g. increasing government expenditure) reducing interest rates) or monetary (e.g. reducing interest rates) policies.
Genuine search unemployment may be reduced, first, by making it easier for individuals to locate job vacancies and second, by increasing the possibility that individuals will accept an offer received earlier in their search period.
The first can be done, for example, by the provision of market information on job availability; the second requires increasing the cost of search to the unemployed individual, for example, by reducing unemployment benefits.
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