Unemployment as defined by the International Labor Organization occurs when people are without jobs and they have actively looked for work within the past four weeks. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.
There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment. Classical, neoclassical and the Austrian School of economics focus on market mechanisms and rely on the invisible hand of the market to resolve unemployment. These theories argue against interventions imposed on the labor market from the outside, such as unionization, minimum wage laws, taxes, and other regulations that they claim discourage the hiring of workers. Keynesian economics emphasizes the cyclical nature of unemployment and potential interventions to reduce unemployment during recessions. These arguments focus on recurrent supply shocks that suddenly reduce aggregate demand for goods and services and thus reduce demand for workers. Keynesian models recommend government interventions designed to increase demand for workers; these can include financial stimuli, job creation, and expansionist monetary policies. Marxism focuses on the relations between the controlling owners and the subordinated proletariat whom the owners pit against one another in a constant struggle for jobs and higher wages. This struggle and the unemployment it produces benefit the system by reducing wage costs for the owners. For Marxists the causes of and solutions to unemployment require abolishing capitalism and shifting to socialism or communism. In addition to these three comprehensive theories of unemployment, there are a few types of unemployment that are used to more precisely model the effects of unemployment within the economic system. The main types of unemployment include structural unemployment which focuses on structural problems in the economy and inefficiencies inherent in labor markets including a mismatch between the supply and demand of laborers with necessary skill sets. Structural arguments emphasize causes and solutions related to disruptive technologies and globalization. Discussions of frictional unemployment focus on voluntary decisions to work based on each individuals' valuation of their own work and how that compares to current wage rates plus the time and effort required to find a job.
TYPES OF UNEMPLOYMENT
Some types of unemployment are:-
STRUCTURAL UNEMPLOYMENT : Structural unemployment is caused by a mismatch between the sufficiently skilled workers looking for jobs and the vacancies available. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers lack the skills needed for the jobs, or are in the wrong part of the country or world to take the jobs offered. Structural unemployment is a result of the dynamics of the labor market and the fact that these can never be as flexible as, e.g., financial markets.
SEASONAL UNEMPLOYMENT : Seasonal unemployment results from the fluctuations in demands for labour in certain industries because of the seasonal nature of production. In such industries there is a seasonal pattern in the demand for labor. During the period when the industry is at its peak there is a high degree of seasonal employment, but during the off-peak period there is a high seasonal unemployment. Seasonal unemployment occurs when an occupation is not in demand at certain seasons.
FRICTIONAL UNEMPLOYMENT : Frictional unemployment occurs when a worker moves from one job to another. While he searches for a job he is experiencing frictional unemployment. This specially applies for new entrants (such as graduating students) and re-entrants (such as former homemakers). Frictional unemployment is always present in an economy. Frictional unemployment exists because both jobs and workers are heterogeneous, and a mismatch can result between the characteristics of supply and demand. Such a mismatch can be related to skills, payment, work-time, location, attitude, taste, and a multitude of other factors.
CYCLICAL UNEMPLOYMENT : Cyclical or Keynesian unemployment, also known as demand deficit unemployment, rises during economic downturns and falls when the economy improves. Keynesians argue that this type of unemployment occurs when there is inadequate effective Aggregate Demand. This is caused by a business cycle recession and wages not falling to meet the equilibrium level. This type of unemployment is the most serious one. This arises when demand for most goods and services fall, i.e., in recession. When demand falls, less production is needed and consequently fewer workers are being demanded, in such a case mass unemployment can be expected.
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.
Most economists have argued that unemployment increases the more the government intervenes into the economy to try to improve the conditions of those with jobs. For example, minimum wage laws raise the cost of laborers with few skills to above the market equilibrium, resulting in people who wish to work at the going rate but cannot as wage enforced is greater than their value as workers becoming unemployed. Laws restricting layoffs made businesses less likely to hire in the first place, as hiring becomes more risky, leaving many young people unemployed and unable to find work. However, this argument is criticized for ignoring numerous external factors and overly simplifying the relationship between wage rates and unemployment- in other words, that other factors may also affect unemployment. Some, such as Murray Rothbard, suggest that even social taboos can prevent wages from falling to the market clearing level.
Involuntary unemployment: In The General Theory, Keynes argued that neo-classical economic theory did not apply during recessions because of excessive savings and weak private investment in an economy. In consequence, people could be thrown out of work involuntarily and not be able to find acceptable new employment.
This conflict between the neoclassical and Keynesian theories has had strong influence on government policy. The tendency for government is to curtail and eliminate unemployment through increases in benefits and government jobs, and to encourage the job-seeker to both consider new careers and relocation to another city.
Involuntary unemployment does not exist in agrarian societies nor is it formally recognized to exist in underdeveloped but urban societies, such as the mega-cities of Africa and of India/Pakistan. In such societies, a suddenly unemployed person must meet their survival needs by getting a new job at any price, becoming an entrepreneur, or joining the underground economy of the hustler.[54]
Hidden unemployment: Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government "retraining" programs) are not officially counted among the unemployed, even though they are not employed. The same applies to those who have taken early retirement to avoid being laid off, but would prefer to be working. The statistic also does not count the "underemployed" - those with part time or seasonal jobs who would rather have full time jobs. In addition, those who are of working age but are currently in full-time education are usually not considered unemployed in government statistics. Because of hidden unemployment, official statistics often underestimate unemployment rates.
In Less Developed Countries, highly inefficient Statistics bodies fail to properly enumerate unemployment levels in the country. For this reason, statistics from these countries are completely unreliable and inaccurate, hence hidden unemployment.
Long-term unemployment: This is normally defined, for instance in European Union statistics, as unemployment lasting for longer than one year. It is an important indicator of social exclusion.
