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Nature of Unemployment
Unemployment,duration of unemployment,the nature of unemployment
Unemployment refers to the proportion of people in an economy who are
willing and able to work, but are unable to get a job. People, who are
not willing or able to work, are economically inactive hence not considered
unemployed.
Nature of Unemployment
First, frictional unemployment occurs when a
person is out of one and job is searching for another. It generally requires
some time before a person can get the next job. The problem of frictional
unemployment is minimized with the development of efficient labor markets.
However, imperfect information may aggravate this problem. The more developed
an economy is, the higher is the likelihood of getting work faster and
the lower is the likelihood of this unemployment occurring.
Structural unemployment arises when the marginal
revenue product of a person falls short of the minimum wage that can be
paid for the concerned job. The minimum wage is set by law or by negotiations
in the union. It can also accompany a situation of zero minimum wages.
The extent to which this unemployment takes place depends on a number
of parameters. The higher the mobility of labor across different jobs,
the lower will be the structural unemployment. Apart from the mobility
of labor, it is also affected by the growth rate of the economy as well
as the composition of an industry.
Real Wage or Classical Unemployment occurs when
the wages rise above the equilibrium full employment level. In such a
situation the wages are not flexible downwards, which will imply that
unemployment would persist for long. Such wages may be set by manipulations
in the trade union.
Cyclical or demand deficient unemployment occurs
when the economy is in need of a low workforce. This form of unemployment
occurs due to economic disequilibrium. The desire for labor increases
when the economy is in the boom phase. When the economy passes though
recession, demand for labor contracts reduces and the surplus is released
as the unemployed labor force.
Yet still, there are certain kinds of unemployment that tend to concentrate
in a particular time of the year and are referred to as seasonal unemployment.
Seasonal unemployment is most common in industries like tourism, hotel,
catering and fruit picking.
Causes of Unemployment
The first starting place of unemployment is simply a lack of aggregate
demand. When there isn't enough demand employers will not need as many
workers, and so, demand-deficient unemployment results.
Unemployment caused by supply-side factors results from imperfections
in the labour market. A perfect labour market will always incorporate
all those looking for work, i.e. supply will be balanced with demand.
Supply-side unemployment may also happen due to occupational or geographical
immobility and poor information about job opportunities.
Effects of Unemployment
These are but not limited to: loss of production and output, misallocation
of resources, decline in labour
market skills, a cost to the government as they have to offset
the budget deficit, poor wages and increased domestic violence, crime,
health problems and psychological tortures. It also causes mass exodus
of people to other countries for greener pastures hence reduced human
resource.
Unemployment Compensation
This is monetary payments to workers laid off without any fault for a
given period of time. Unemployment
compensations are intended to provide an unemployed worker
time to find a new job without financial distress. It also helps in sustaining
consumer spending during periods of economic tweaking. |
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