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Unemployment

Unemployment

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Published by ajaysirwan

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Published by: ajaysirwan on Nov 12, 2009
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Unemployment
From Wikipedia, the free encyclopedia
Jump to:navigation, search The examples and perspective in this article
may not represent aworldwide viewof the subject
. Pleaseimprove this articleand discuss the issue on thetalk page.
(February2008)
CIA figures for the latestworld unemployment rates
Unemployment
occurs when a person is available to work but currently withoutwork .
The prevalence of unemployment is usually measured using the unemployment rate, which is definedas the percentage of those in thelabor force who are unemployed. The unemployment rate is also used in economicstudies and economicindices such as theUnited States' Conference Board's  Index of Leading Indicatorsas a measure of the state of themacroeconomics. Most economic schools of thought agree that the cause of involuntary unemployment is thatwages are above the market clearing rate. However, there are disagreements as to why this would be the case: the economists argue that in a downturn, wages stay high because they are naturally'sticky', whilst others argue that minimum wages and union activity keep them high. Keynesianeconomics emphasizes unemployment resulting from insufficient effective demandfor goods and services in the economy (cyclical unemployment
 
). Others point to structural problems,inefficiencies, inherent in labour markets (structural unemployment).Classicalor  neoclassical economics tends to reject these explanations, and focuses more on rigidities imposed on the labor market from the outside, such as minimum wage laws, taxes, and other regulations that maydiscourage the hiring of workers (classical unemployment
 
). Yet others see unemployment aslargely due to voluntary choices by the unemployed (frictional unemployment
 
). Alternatively,some blame unemployment ondisruptive technologies or Globalisation. There is also disagreement on how exactly to measure unemployment. Different countries experience differentlevels of unemployment; traditionally, the USAexperiences lower unemployment levels than countries in theEuropean Union,
[2]
although there is variant there, with countries like the UK and Denmark outperformingItalyand Franceand it also changes over time (e.g. the Great depression) throughouteconomic cycles.
 
[edit] Okun's Law
Okun's lawstates that for every 3% GDP falls relative to potential GDP, unemployment rises 1%(of the total workforce). When the economy operates at productive capacity, it will experiencethenatural rate of unemployment.
U= ^u-h[100(y/yn)-100]
[edit] Involuntary unemployment
Say's lawstates that in a laissez-faireeconomy, every seller will in time find a buyer at some  price, called the market clearing price. Sellers and buyers may refuse the clearing price but this personal decision is voluntary, and so such a transaction lies outside the economic model. Thistheory relies heavily on the absence of government regulation and assumes a developed economywithout sabotage where labor strikes are illegal.
[
 
]
In
,Keynes attempted to show that Say’s law did not apply in the real worldof the Depression because of oversaving and private investor timidity, with the consequence that people could be thrown out of work involuntarily and not be able to find acceptable newemployment.This conflict between the neoclassical and Keynesian theories has had strong influence ongovernment policy. The tendency for government is to curtail and eliminate unemploymentthrough increases in benefits and government jobs, and to encourage the job-seeker to bothconsider new careers and relocation to another city.Involuntary unemployment does not exist in agrarian societies nor is it formally recognized toexist 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 needseither by getting a new job at any price, becoming an entrepreneur, or joining the undergroundeconomy of the hustler.
Involuntary unemployment is discussed from the narrative standpoint in stories byEhrenreich,the narrative sociology of Bourdieu, and novels of social suffering such as John Steinbeck 's 
.
[edit] Solutions
Societies try a number of different measures to get as many people as possible into work.However, attempts to reduce the level of unemployment beyond the Natural rate of unemploymentgenerally fail, resulting only in less output and moreinflation
[
 
]
.
[edit] Demand side
According to classical economic theory, markets reach equilibrium where supply equals demand;everyone who wants to sell at the market price can. Those who do not want to sell at this price donot; in the labour market this is classical unemployment. Increases in the demand for labour willmove the economy along the demand curve, increasing wages and employment. The demand for labour in an economy is derived from the demand for goods and services. As such, if the demand

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