In economics, a person who is able and willing to work, given the prevailing wage, yet is unable to find a job is considered unemployed. The unemployment rate measures the number of unemployed workers as a proportion of the total labor force.
Because of the adverse impact of unemployment on society, understanding the forces that create unemployment, and then trying to minimise it, is a central issue in economics. There is considerable debate amongst economists as to what the main causes of unemployment are. Keynesian economics suggests that unemployment can be explained by insufficient demand for goods in the economy. Neoclassical economics tends to reject this explanation, and focuses more on factors in the labour market, such as minimum wage laws, taxes, and other regulations that may discourage the hiring of workers. Following this tradition Professor Kim Swales of the University of Strathclyde has considered a Pigovian approach to helping unemployment that involves tax breaks on value-added tax [1] [1].
Unemployment in its modern form is associated with industrial capitalist economies. Marxist planned economies typically provide occupation for everyone, using substantial overstaffing if necessary. In non-capitalist societies such as the American frontier or feudal systems, there were day laborers and subsistence farmers on poor land, whose position in society was somewhat analogous to the unemployed of today.
Children, the elderly, and some individuals with disabilities are typically not counted as part of the labor force in and are correspondingly not included in the unemployment statistics. However, some elderly and many disabled individuals are active in the labor market.
Typically, the labor force includes only the formal job market. Hence, a housewife or a self-employed person is neither part of the labor force nor unemployed.
In the early stages of a boom, both employment and unemployment often rise. This is because people join the labor market (give up studying, start a job hunt, etc.) because of the improving job market, but until they have actually found a position they are registered as unemployed. A worker who has left the labor force, but would in fact like to work, is an example of hidden unemployment.
The unemployment figures indicate how many are registered as not working but seeking employment. It need not say anything about how many are actually not working at all or not working as an employee. Also, those who work as little as one hour a week for payment are considered employed, even if they wish to work more. Therefore, critics believe that current methods of measuring unemployment are inaccurate as these methods do not take into account:
Measuring unemployment
Some factors such as unemployment benefits can alter statistics since they give an incentive to register as unemployed. If there are few or no benefits, people may not bother registering as unemployed. Conversely, a homemaker may register as unemployed if it can legally do so, even if he or she does not seek a job.
Due to these deficiencies, many labour market economists prefer to look at a range of economic statistics such as:
See also