Definition of Unemployment

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 don’t 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 work

See: 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 of unemployment, especially in a downturn. This is also known as cyclical unemployment – referring to how unemployment increases during an economic downturn.

fallinad

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

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 doesn’t 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 as people 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 don’t 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

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

8 Responses to Definition of Unemployment

  1. Rachel June 5, 2010 at 5:51 pm #

    Thank you for this immensely helpful, and above all very readable blog. I take my AS Macro in a few days and plan to use as much of your site as possible in the meanwhile. You are a godsend :) keep it up!

  2. owoyemi gbenga July 24, 2010 at 4:10 pm #

    thank 4 ur care and concern.need u 4 more counselling and advice.i am an economics undergraduate in nigeria (university ado-ekiti).thanks and God bless

  3. Mike September 27, 2010 at 8:52 pm #

    If I currently receiving Unemployment Benefits and I accept a part time job, am I still defined as Unemployed legally?

  4. Roxanne February 14, 2011 at 1:41 am #

    I’m writing a blog about being unemployed.Tracking my job applications, it’s interesting to see how few replies I get and believe it or not I am qualified with good application writing skills!

  5. aishem October 2, 2012 at 5:41 am #

    thanks for that blog,

  6. mthokozisi November 9, 2012 at 10:56 am #

    thank you for such an interesting block….. you have summarised the understanding of unemployment in the good approach

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