Business, Legal & Accounting Glossary
Unemployment is the time period when an individual is without work, available for work, and currently looking for work. Unemployment figures are calculated by the percentage of the eligible labour force without a job. The unemployment rate is calculated according to the following formula:
Unemployment rate= (unemployed workers / total labor force) × 100%.
Unemployment describes the state of a worker who is able and willing to take work but cannot find it. As indicated by the unemployment rate and other yardsticks, unemployment is an important measure of the economy’s strength. A high unemployment rate generally indicates an economy in recession with few job opportunities, while a low unemployment rate points to an economy running at or near full throttle. A low unemployment rate has its downside for stock prices, however: it may be a harbinger of higher interest rates that will slow both an overheated economy and the rise in equity values. In recent years, there’s been much controversy over what the true level of U.S. unemployment is. Some economists have relied more on the government’s “establishment survey data,” which emphasizes the number of new jobs, rather than “household survey data,” which is used to compute the headline unemployment rate. Moreover, new technologies and lifestyle changes, which are increasing the number of temporary, contract, and self-employed workers, are making it more difficult to define what unemployment is.
Unemployment is of various types. Types of unemployment vary on the basic cause underlying the economic phenomena.
Different variations of unemployment are as follows:
Classical unemployment happens when real wages of a line of work is above the market-clearing level. This economic phenomenon is largely subscribed to active government intervention or by the action of labour unions.
This type of unemployment occurs when an individual travels from one job to another. Frictional employment takes place at the time when a worker searches for employment. This type of unemployment increases the economic efficiency of a country.
This is cyclical unemployment. Keynesian unemployment takes place during a business cycle recession, when wages do not cope with the equilibrium rate. Keynes believed there was an elastic workforce or an unlimited number of unemployed that were available to fill jobs.
The reason behind structural unemployment is the difference in jobs between expected workers and employers. Structural unemployment may relate to employee skills, geographical location, and a number of other factors.
Unemployment in any given society makes the unemployed individuals ineffective to meet any financial obligations. Unemployment increases illnesses, the specter of malnutrition, and may cause depression. A high unemployment rate also increases protectionism and xenophobia in a specific country or society. Concerted efforts are frequently seen to create trade barriers to insulate the local economy against foreign business competitors.
Causes of unemployment is a matter of debate among economists. Classical economics focuses on external factors like high taxes and minimum wage laws. Keynesian economists subscribe unemployment due to a lesser effective demand for services and goods in a country. Unemployment itself can be voluntary or involuntary. Involuntary unemployment is caused by cyclical economic cycles and government legislation. Voluntary unemployment is ascribed to decisions undertaken by individual workers themselves. Frictional unemployment can be cited as a case of voluntary unemployment.
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This glossary post was last updated: 2nd April, 2020