Unemployment arises when people are without work but are actively seeking it. The rate increases during periods of recession when economies usually experience a relatively high unemployment rate
For example, the International Labor Organization report for 2012 stated that almost 200 million people worldwide were out of work. That translates to 6% of the world’s workforce being without a job.
However, that figure does not show the whole picture, because it doesn’t address the causes and types of unemployment.
Among economists, there is considerable theoretical debate about the causes, consequences and solutions for unemployment.
Some argue that market mechanisms are the most reliable means of resolving unemployment. They claim that interventions imposed on the labor market from the outside discourage the hiring of workers. These include unionization, bureaucratic work rules, minimum wage laws, taxes, and other regulations.
John Maynard Keynes disagreed and argued for government intervention in the case of cyclical unemployment.
The Keynesian model recommends that governments should attempt to increase demand for workers. The measures could include financial stimuli, publicly funded job creation, and expansionist monetary policies.
However, there are many other reasons why people are out of work, and there are different types of unemployment.
These are as follows:
1. Classical Unemployment
Classical – sometimes called real wage unemployment – occurs when the numbers of those seeking to work exceeds the amount of available jobs.
Contradicting the Keynsian theory, the reality is that government interference in the realm of setting a minimum wage simply results in fewer workers being employed.
Other laws limiting the circumstances in which workers can be dismissed simply ensure that businesses become more reluctant to hire at all.
2. Cyclical Unemployment
This form of unemployment is often seasonal, or occurs when there are simply not enough jobs to go round. Its name is derived from changes in the cycle of business over months or years, which is a normal phenomenon.
Karl Marx – not known for his appreciation of capitalism – said that it was in the nature of the capitalist mode of production to overwork some people, while maintaining a reserve army of unemployed paupers.
3. Structural Unemployment
Structural unemployment occurs when a labor market is unable to provide jobs for everyone who wants one. This is because the skills of the unemployed workers, and the skills needed for the available jobs, simply don’t match.
Structural unemployment is difficult to separate from frictional unemployment, except it lasts longer.
The problem is that if an economy suffers from long-lasting low aggregate demand, many of the unemployed become disheartened, while their skills become outdated. Problems with debt can then lead to homelessness and so they fall into a vicious circle of poverty.
When the economic situation of the society improves, it is often too late for them, and they simply may not fit the job vacancies that are created.
4. Technological unemployment
This is due to the replacement of workers by machines and might be counted as structural unemployment. Or, it might refer to the way in which steady increases in labour productivity mean that fewer workers are needed to produce the same level of output every year.
5. Frictional unemployment
Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called “search unemployment” and can be voluntary based according to the circumstances of the unemployed individual.
Frictional unemployment is always present in an economy,
6. Hidden unemployment
This is the unemployment of potential workers that is not reflected in official unemployment statistics, due to the way they are collected. In many countries only those who have no work, but are actively seeking work – while qualifying for social security benefits – are counted as unemployed.
Those who have given up looking for work, or are on government sponsored “retraining” programs, are not officially counted among the unemployed, even though they are not really employed.
7. Long-term unemployment
The definition of this is not fixed.
In the European Union, it is classified as unemployment lasting for longer than one year. However, the United States Bureau of Labor Statistics reports this as 27 weeks or longer.
Long-term unemployment frequently results in older workers taking early retirement.
For a person out of work who really wants a job, the definitions of types of unemployment are irrelevant.
Unemployment is a simply a waste of resources. But the worst aspect, on a personal level, is that it drives people to poverty and erodes self-esteem thus promoting social dislocation, unrest and conflict.
Are you – or have you ever been – unemployed? How did it make you feel?
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