Unemployment

How to define unemployment

Unemployment occurs when a person is available to work and currently seeking
work, but the person is without work.

How we measure unemployment? PP

Labour Force Survey
The LFS is carried out under a European Union Directive and uses
internationally agreed concepts and definitions.

It is the source of the internationally comparable

International Labor Organisation measure known as ILO unemployment.

How unemployment is measured?

Based on the answers to the survey questions, the BLS places each adult into one
of three categories

Unemployed

Employed

Not in the labour force

Unemployed persons are:

All persons who did not have a job at all during the survey reference week,

made at least one specific active effort to find a job during the prior 4 weeks,

were available for work (unless temporarily ill).

All persons who were not working and were waiting to be called back to a job
from which they had been laid off (they need not be looking for work to be
classified as unemployed)

Labour force:

Unemployment 1
 A person is considered employed if he or she has spent most of the previous
week working at a paid job.

A person is unemployed if he or she is on temporary layoff, is looking for a job,

or is waiting for the start date of a new job.

A person who fits neither of these categories, such as a full-time student

homemaker, or retiree, is not in the labor force

Labour force is defined as the sum of the employed and the unemployed

Unemployment rate
The unemployment rate is calculated as the percentage of labour force that is
unemployed.

Labour force participation rate

The labour-force participation rate is the percentage of the adult population that is in
the labor force.

Unemployment 2
 Employment to population ratio
Employment to population ratio is the proportion of a country's population that is
employed. Ages 15 and older are generally considered the working-age population.

Problems in measuring unemployment rate

How to differentiate between a person who is unemployed and a person who is
not in the labour force

People may claim to be unemployed in order to receive financial assistance,

even though they aren't looking for work. They can have illegal contract of
employment.

Classification of unemployment
Classical unemployment

Frictional unemployment

Structural unemployment

Cyclical unemployment

Hidden unemployment

Seasonal unemployment

Cyclical unemployment or Demand-deficient

This refers to unemployment that rises during economic downturns and falls
when the economy improves.

Unemployment 3
 Keynesians argue that this type of unemployment exists due to inadequate
effective aggregate demand.

It gets its name because it varies with the business cycle.

This kind of unemployment coincides with unused industrial capacity

(unemployed capital goods).

Keynesian economists see it as possibly being solved by government deficit

spending or by expansionary monetary policy, which aims to increase
nongovernmental spending by lowering interest rates.

Demand- deficient or cyclical unemployment – Disequilibrium unemployment caused

by a fall in aggregate demand with no corresponding fall in the real wage rate.

Structural unemployment
Structural unemployment is caused by a mismatch between jobs offered by
employers and potential workers.

This may pertain to geographical location, skills, and other factors.

For example, when shipyards are closed down, many workers will become
structural unemployed.

Technological unemployment (e.g. due to the replacement of workers by

machines) might be counted as structural unemployment.

Unemployment 4
 Frictional unemployment
Frictional unemployment occurs when a worker moves from one job to another.

While he searches for a job he is experiencing frictional unemployment. This

applies for fresh graduates looking for employment as well.

This is a part of the economy, increasing both the worker's long term welfare and
economic efficiency.

It may be a result of imperfect information in the labour market

Seasonal unemployment
Seasonal unemployment occurs when the demand for certain types of labour
fluctuates with the seasons of the year. This problem is particularly severe in
holiday areas, where unemployment can reach very high levels.

Classical unemployment
Classical or real-wage unemployment occurs when real wages for a job are set
above the market-clearing level.

This is often ascribed to government intervention, as with the minimum wage, or

labour unions.

Unemployment 5