UNEMPLOYMENT

Unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. The most frequent measure of unemployment rate, which is the number of unemployed people divided by the number of people in the labour force.

Definitions:

The state of being without any work yet looking for work is called Unemployment. Unemployment is the key for the economic indicator because it signals the ability of workers to readily obtain gainful work to contribute to the productive output of the economy. High unemployment indicate the lower output of social economy.

Types Of Unemployment:

We can divide unemployment into four types

1.Classical Unemployment: Classical, or real-wage, unemployment, occurs when real wages for a job are set above the market-clearing level, causing the number of job-seekers to exceed the number of vacancies. On the other hand, most economists argue that as wages fall below a livable wage, many choose to drop out of the labor market and no longer seek employment. That is especially true in countries in which low-income families are supported through public welfare systems. In such cases, wages would have to be high enough to motivate people to choose employment over what they receive through public welfare. Wages below a livable wage are likely to result in lower labor market participation in the above-stated scenario.

2. Cyclical Unemployment: Cyclical unemployment is the variation in the number of unemployed workers over the course of economic upturns and downturns, such as those related to changes in oil price. Unemployment rises during recessionary periods and declines during periods of economic growth. Preventing and alleviating cyclical unemployment during recessions is one of the key reasons for the study of economics and the purpose of the various policy tool that governments employ on the downside of business cycles to stimulate the economy.

3. Structural Unemployment: structural Unemployment comes about through technological change in the structure of the economy in which labor markets operate. Technological changes—such as the replacement of horse-drawn transport by automobiles or the automation of manufacturing—lead to unemployment among workers displaced from jobs that are no longer needed. Retraining these workers can be difficult, costly, and time-consuming, and displaced workers often end up either unemployed for extended periods or leaving the labor force entirely.

4. Frictional Unemployment: Frictional Unemployment occurs as a result of people voluntary changing job within an economy. After a person leaves a company, it naturally takes time to find another job. Similarly, graduates just entering the workforce add to frictional unemployment. Usually, this type of unemployment is short-lived. It is also the least problematic from an economic standpoint. Frictional unemployment is a natural result of the fact that market processes take time and information can be costly. Searching for a new job, recruiting new workers, and matching the right workers to the right jobs all take time and effort, resulting in frictional unemployment.

Measurement:

Though many people care about the number of unemployed individuals, economists typically focus on the unemployment rate, which corrects for the normal increase in the number of people employed caused by increases in population and increases in the labour force relative to the population. The unemployment rate is expressed as a percentage and calculated as follows: