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[[Category:Politics and social sciences]]
 
[[Category:Politics and social sciences]]
 
[[Category:Economics]]
 
[[Category:Economics]]
 
 
 
 
  
 
[[Image:panic1837.jpg|thumb|350px|An 1837 political cartoon about unemployment in the [[United States]].]]
 
[[Image:panic1837.jpg|thumb|350px|An 1837 political cartoon about unemployment in the [[United States]].]]
 
[[Image:Unemployment rate world from CIA figures2.PNG|thumb|350px|CIA figures for world unemployment rates, 2006]]
 
[[Image:Unemployment rate world from CIA figures2.PNG|thumb|350px|CIA figures for world unemployment rates, 2006]]
  
'''Unemployment''' is the condition of willing workers lacking jobs or "gainful employment". In [[economics]], '''unemployment''' statistics measure the condition and extent of joblessness within an economy. A key measure is the unemployment rate, which is the number of unemployed workers divided by the total civilian [[labor force]].  The unemployment rate is also used in economic studies and economic indexes such as the [[The Conference Board | Conference Board’s]] [[Index of Leading Indicators]]. Unemployment in an economic sense has proved a surprisingly difficult thing to define, let alone "cure".
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'''Unemployment''' is the condition of willing workers lacking jobs or "gainful employment."  In [[economics]], unemployment [[statistics]] measure the condition and extent of joblessness within an [[economy]]. A key measure is the unemployment rate, which is the number of unemployed workers divided by the total civilian [[labor force]].  
  
The terms ''unemployment'' and ''unemployed'' may sometimes be used to refer to inputs to production that are not being fully used (apart from labor) — for example, unemployed [[capital goods]]. In its most general, but uncommon usage, unemployment might also denote objects not put to productive use.
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Unemployment in an economic sense has proved a surprisingly difficult thing to define, let alone "cure." This is because there are many different types of unemployment, which overlap and so confound measurement and analysis. Some economists argue that full employment is the natural and desirable state of any healthy society. [[Marxism|Marxists]] in particular claim that it is [[capitalism]] and the greed of the capitalists that causes unemployment to continue. Others have noted that certain types of unemployment are natural, such as seasonal unemployment for those working in fields where the amount of work fluctuates, or when new graduates and those returning to the workforce are seeking jobs.  
  
Before industrialization unemployment has been said not to have been recognized as an issue in rural areas, despite the "disguised unemployment" of rural laborers having little to do, especially in conditions of overpopulation.
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In the ideal, everyone who wishes to work should be able to work, thus contributing to the larger society as well as receiving compensation that pays for their individual and family needs. This does not mean that every member of society works continuously; naturally some are training for new jobs, while others may have taken a break from the workforce for various reasons, and others are in the process of making a transition from one career or geographical location to a new one. Additionally, on the demand side, there may be times when employers need fewer workers, and so need to lay off some of the workforce temporarily. What is important for the health of society and the well-being of its members is that when people are unemployed that they have sufficient financial support to maintain themselves, and the opportunity to obtain new employment within a reasonable time frame. In an ideal society where all people live for the sake of others not simply for their personal benefit, unemployment problems can be minimized and each person can find the way to make their contribution to society.
  
==Impact of unemployment on society==
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==Overview==
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Most [[economics|economists]] believe that some '''unemployment''' will occur no matter what actions are taken by the [[government]]. This can be just because there will likely always someone looking for a job who cannot find one because of lack of skills, lack of availability of desirable positions, or being unwilling to move to a new location among other reasons. Some economists argue that unemployment is even necessary for a fully functioning [[economy]] as it is the result of useful re-aligning of priorities within the economy.
  
[[Image:Us unemployment rates 1950 2005.png|thumb|right|250px|Unemployment rate (as a percentage of the labor force) in the [[United States]]. Data source: U.S. [[Bureau of Labor Statistics]].]]
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[[Karl Marx|Marx]] and his followers have argued against keeping a "reserve army of the unemployed" based on the belief that unemployment is simply maintained to oppress laborers through needless competition. Many remedies for high rates of unemployment exist. Governments can offer military enlistment, people can engage in volunteer work, training can be given to help people qualify for new jobs, and relocation programs can be provided to assist people in meeting employment needs outside of their present geographical locale.
  
===Individual costs===
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==Types==
In the absence of a job when a person needs one, it can be difficult to meet financial obligations such as purchasing food to feed oneself and one's family, and paying one's bills; failure to make mortgage payments or to pay rent may lead to [[homelessness]] through [[foreclosure]] or [[eviction]]. Being unemployed, and the financial difficulties and loss of [[health insurance]] benefits that come with it, may cause malnutrition and illness, and are major sources of mental stress and loss of [[self-esteem]] which may lead to [[Clinical depression|depression]], which may have a further negative impact on [[health]].  
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[[Image:461px-Lange-MigrantMother02.jpg|250px|thumb|The [[Great Depression]], represented here in [[Dorothea Lange]]'s ''Migrant Mother'', was characterized by a massive surge of cyclical unemployment. It made most of even those with jobs miserable and encouraged mass poverty.]]
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[[economics|Economists]] distinguish between five major kinds of unemployment: cyclical, frictional, structural, classical, and Marxian. Real-world unemployment may combine different types, such that all five might exist at one time. The magnitude of each is difficult to measure, because they overlap and are thus hard to separate from each other.  
  
Lacking a job often means lacking social contact with fellow employees, a purpose for many hours of the day, lack of [[self-esteem]], mental stress and illness, and of course, the inability to pay bills and to purchase both necessities and luxuries. The latter is especially serious for those with family obligations, debts, and/or medical costs, where the availability of [[health insurance]] is often linked to holding a job. Dr. M. Harvey Brenner and others have shown that rising unemployment increases the [[crime]] rate, the [[suicide]] rate, and causes a decline in healthiness.<ref>Virginia Tech, Department of Economics, Professor Richard Ashley's website, [http://ashleymac.econ.vt.edu/ashley/3204/brenner.pdf Fact sheet on the impact of unemployment], retrieved May 25, 2007</ref> However, during the [[Great Depression]], when unemployment rates exceeded 20% in many countries, the crime rate did not increase.{{Fact|date=February 2007}} Because unemployment insurance in the U.S. typically does not even replace 50% of the income one received on the job (and one cannot receive it forever), the unemployed often end up tapping [[welfare (financial aid)|welfare]] programs such as [[Food Stamps]] &mdash; or accumulating [[debt]], both formal debt to banks and informal debt to friends and relatives. Higher government transfer payments in the form of welfare and food stamps decrease spending on productive economic goods, decreasing GDP.
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=== Cyclical unemployment === 
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Cyclical unemployment exists due to inadequate effective [[aggregate demand]]. Its name is derived from its variation with the [[business cycle]], though it can also be persistent, as during the [[Great Depression]] of the 1930s. Such unemployment results when [[Gross domestic product]] is not as high as [[potential output]] because of demand failure, due to (say) [[pessimism|pessimistic]] business expectations which discourages private fixed investment spending. Low government spending or high taxes, [[underconsumption]], or low exports compared to imports may also have this result.
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Some consider this type of unemployment one type of [[Unemployment#Frictional unemployment|frictional unemployment]] in which factors causing the friction are partially caused by some cyclical variables. For example, a surprise decrease in the [[money supply]] may shock participants in society. Then, we may see [[recession]] and cyclical unemployment until expectations adjust to the new conditions.  
  
Some hold that many of the low-income jobs aren't really a better option than unemployment with a [[welfare state]] (with its [[unemployment insurance]] benefits). But since it is difficult or impossible to get unemployment insurance benefits without having worked in the past, these jobs and unemployment are more complementary than they are substitutes. (These jobs are often held short-term, either by students or by those trying to gain experience; turnover in most low-paying jobs is high, in excess of 30%/year.{{Fact|date=February 2007}}) Unemployment insurance keeps an available supply of workers for the low-paying jobs, while the employers' choice of management techniques (low wages and benefits, few chances for advancement) is made with the existence of unemployment insurance in mind. This combination promotes the existence of one kind of unemployment, [[Unemployment types#Frictional unemployment|frictional unemployment]].
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In this case, the number of unemployed workers exceeds the number of job vacancies, so that if even all open jobs were filled, some workers would remain unemployed. This kind of unemployment coincides with unused industrial capacity (unemployed capital goods). [[John Maynard Keynes|Keynesian]] economists see it as possibly being solved by government [[deficit spending]] or by expansionary [[monetary policy]], which aims to increase non-governmental spending by lowering [[interest rate]]s.
  
Another cost for the unemployed is that the combination of unemployment, lack of financial resources, and social responsibilities may push unemployed workers to take jobs that do not fit their skills or allow them to use their talents. That is, unemployment can cause [[underemployment]] (definition 1). This is one of the economic arguments in favor of having unemployment insurance.
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[[Classical economics|Classical economists]] reject the conception of cyclical unemployment as inevitable, seeing the attainment of full employment of resources and potential output as the normal state of affairs.
  
This feared '''cost of job loss''' can spur psychological anxiety, weaken [[trade union|labor union]]s and their members' sense of solidarity, encourage greater work-effort and lower wage demands, and/or abet [[protectionism]]. This last means efforts to preserve existing jobs (of the "insiders") via barriers to entry against "outsiders" who want jobs, legal obstacles to [[immigration]], and/or [[tariff]]s and similar [[trade barrier]]s against foreign competitors. The impact of unemployment on the employed is related to the idea of [[Unemployment types#Marxian unemployment|Marxian unemployment]]. Finally, the existence of significant unemployment raises the [[oligopsony]] power of one's employer: that raises the cost of quitting one's job and lowers the probability of finding a new source of livelihood.
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===Frictional unemployment===
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Frictional unemployment involves people being temporarily between jobs, while searching for new ones; it is compatible with [[full employment]]. (It is sometimes called "search unemployment" and is seen as largely voluntary.) It arises because either employers fire workers or workers quit, usually because the individual characteristics of the workers do not fit the particular characteristics of the job (including matters of the employer's personal taste or the employee's inadequate work effort). Sometimes new entrants (such as graduating students) and re-entrants (such as former homemakers) suffer from spells of frictional unemployment.  
  
===Economic benefits of unemployment===
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Some employers&mdash;such as fast-food restaurants, [[chain store]]s, and job providers in [[secondary labor market]]s&mdash;use management strategies that rely on rapid turnover of employees, so that frictional unemployment is normal in these sectors.
{{Seealso|Full employment}}
 
  
Unemployment may have advantages as well as disadvantages for the overall economy. Notably, it may help avert runaway [[inflation]], which negatively affects almost everyone in the affected economy and has serious long-term economic costs. However the historic assumption that full local employment must lead directly to local inflation has been attenuated, as recently expanded international trade has shown itself able to continue to supply low-priced goods even as local employment rates rise closer to full employment.  
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This type of unemployment coincides with an equal number of vacancies and cannot be solved using [[aggregate demand]] stimulation. The best way to lower this kind of unemployment is to provide more and better information to job-seekers and employers, perhaps through centralized job-banks (as in some countries in Europe). In theory, an economy could also be shifted away from emphasizing jobs that have high turnover, perhaps by using [[tax]] incentives or worker-training programs.  
  
The inflation-fighting benefits to the ''entire economy'' arising from a presumed optimum level of unemployment has been studied extensively.  Before current levels of world trade were developed, unemployment was demonstrated to reduce inflation, following the [[Phillips curve]], or to decelerate inflation, following the NAIRU/[[natural rate of unemployment]] theory.  
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But some frictional unemployment is beneficial, since it allows workers to obtain the jobs that best fit their wants and skills and the employers to find employees who promote profit goals the most. It is a small percentage of the unemployment, however, since workers can often search for new jobs while employed&mdash;and employers can seek new employees before firing current ones.  
  
Beyond the benefits of controlled inflation, [[Unemployment types#Frictional unemployment|frictional unemployment]] provides employers a larger applicant pool from which to select employees better suited to the available jobs. The unemployment needed for this purpose may be very small, however, since it is relatively easy to seek a new job without losing one's current one. And when more jobs are available for fewer workers (lower unemployment), it may allow workers to find the jobs that better fit their tastes, talents, and needs.
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One kind of frictional unemployment is called "wait unemployment" and refers to the effects of the existence of some sectors where employed workers are paid more than the [[market clearing|market-clearing]] [[Economic equilibrium|equilibrium]] wage. Not only does this restrict the amount of employment in the high-wage sector, but it attracts workers from other sectors who "wait" to try to get jobs there. The main problem with this theory is that such workers will likely "wait" while having jobs, so that they are not counted as unemployed.  
  
As in the Marxian theory of unemployment, [[special interests]] may also benefit: some employers may expect that employees with no fear of losing their jobs will not work as hard, or will demand increased wages and benefit.  According to this theory, unemployment may promote general [[Productivity (economics)|labor productivity]] and [[profit]]ability by increasing employers' [[monopsony]]-like power (and profits).
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Another type of frictional unemployment is "seasonal unemployment" where specific industries or occupations are characterized by seasonal work which may lead to unemployment. Examples include workers employed during farm [[harvest]] times or those working winter jobs on the ski slopes or summer jobs such as life-guarding at pools and [[agriculture|agricultural]] labor.
  
Optimal unemployment has also been defended as an environmental tool to brake the constantly accelerated growth of the GDP to maintain levels sustainable in the context of resource constraints and environmental impacts.  However the tool of denying jobs to willing workers seems a blunt instrument for conserving resources and the environment — it reduces the consumption of the unemployed across the board, and only in the short-term. Full employment of the unemployed workforce, all focused toward the goal of developing more environmentally efficient methods for production and consumption might provide a more significant and lasting cumulative environmental benefit and reduced resource consumption.  If so, the future economy and workforce would benefit from the resultant structural increases in the sustainable level of GDP growth.
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=== Structural unemployment===
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Structural unemployment involves a mismatch between the "good" workers looking for jobs and the vacancies available. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers lack the skills needed for the jobs&mdash;or are in the wrong part of the country or world to take the jobs offered. It is a mismatch of skills and opportunities due to the structure of the economy changing. That is, it is very expensive to unite the workers with jobs.  One possible example in the rich countries is the combination of the shortage of [[nursing|nurses]] with an excess labor supply in [[information technology]]. Unemployed programmers cannot easily become nurses, because of the need for new specialized training, the willingness to switch into the available jobs, and the legal requirements of such professions.
  
==Competing theories as to causes of unemployment==
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Structural unemployment is a result of the dynamic changes such as [[technology|technological change]] and the fact that labor markets can never be as fluid as (say) financial markets. Workers are "left behind" due to costs of training and moving (such as the cost of selling one's house in a [[depression (economics)|depressed]] local economy), plus inefficiencies in the labor markets, including [[discrimination]].
  
''Open unemployment'' of the sort defined above is associated with [[capitalism|capitalist]] economies. Preliterate communities are thought to treat their members as parts of an extended family and thus not to allow them to be unemployed &mdash; in the effort to preserve the group. In precapitalist societies such as European [[feudalism]], the serfs (though clearly dominated and exploited by the lords) were never "unemployed" because they had direct access to the land (and the needed tools) and could thus work to produce crops. Just as on the American frontier during the nineteenth century, there were day laborers and subsistence farmers on poor land, whose position in society was somewhat analogous to the unemployed of today. But they were not truly unemployed, since they could find work and support themselves on the land.
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Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. It is also more painful. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.  
  
Under both ancient and modern systems of slave-labor, slave-owners never let their property be unemployed for long. (If anything, they would sell the unneeded laborer.) [[central planning|Planned economies]] such as the old [[Soviet Union]] or today's [[Cuba]] typically provide occupation for everyone, using substantial overstaffing if necessary. (This is called "hidden unemployment," which is sometimes seen as a kind of [[underemployment]], definition 3.) [[Cooperatives#Worker cooperative|Workers' cooperatives]] &mdash; such as those producing [[plywood]] in the U.S. Pacific Northwest &mdash; do not let their members become unemployed unless the co-op itself goes bankrupt.
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Some sort of direct attack on the problems of the labor market&mdash;such as training programs, mobility subsidies, anti-discrimination policies, a [[Basic Income Guarantee]], and/or a [[Citizen's Dividend]]&mdash;seems required. The latter provide a "cushion" of income which allows a job-seeker to avoid simply taking the first job offered and to find a vacancy which fits the worker's skills and interests. These policies may be reinforced by the maintenance of high aggregate demand, so that the two types of policy are complementary.
  
On the other hand, under capitalism the individual profit-seeking employer does not have to bear the complete [[social cost]]s of laying off or firing workers, so they are willing to live with (or even profit from) the existence of unemployment &mdash; unless employees are able to win good severance packages or protection from the government (such as restrictions on firing and lay-offs, although some doubt if even these help since they may make employers more reluctant to take the risk of hiring someone in the first place). (That is, there is arguably a [[market failure]] due to the existence of [[externality|external costs]] of firing or laying-off of people.) On the "supply side," workers' lack of significantly positive net worth (beyond equity in a home or a car) makes it very difficult for them to go into business for themselves to avoid unemployment. Economist [http://www.econ.nyu.edu/user/wolffe/ Edward Wolff] estimates that in 1995 in the U.S., families with adults aged 25-45 in the middle income quintile could sustain their current consumption for only 1.2 months (or live at 125% of the poverty standard for 1.8 months) based on their financial reserves. Poorer quintiles of course had more difficulty!
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Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while finding their skills (including [[job hunting|job-searching]] skills) become "rusty" and obsolete. Problems with [[debt]] may lead to [[homelessness]] and a fall into the vicious circle of [[poverty]]. This means that they may not fit the job vacancies that are created when the economy recovers. The implication is that sustained ''high'' demand may ''lower'' structural unemployment. However, it also may encourage [[inflation]], so some kind of [[incomes policies]] (wage and price controls) may be needed, along with the kind of labor-market policies mentioned in the previous paragraph. (This theory of rising structural unemployment has been referred to as an example of [[path dependence]] or "hysteresis.")
  
Since not all unemployment may be "open" and counted by government agencies, official unemployment may be very low even under capitalism. Most poorer capitalist countries lack a modern welfare state and unemployment insurance so that it is very difficult to afford being unemployed for very long: they often end up taking jobs below their skill levels. Those who might be counted as "unemployed" in the rich countries end up instead being [[underemployment|underemployed]] (definition 1) and not counted.
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Much "technological unemployment" (such as due to the replacement of workers by [[robot]]s) might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labor productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with this problem suggests that this problem is instead one of cyclical unemployment. As indicated by [[Okun's Law]], the demand side must grow sufficiently quickly to absorb not only the growing labor force but also the workers made redundant by increased labor productivity. Otherwise, we see a "jobless recovery" such as those seen in the United States in both the early 1990s and the early 2000s.  
  
Others argue that unemployment actually increases the more the government intervenes into the economy. For example, minimum wages raise costs of doing business and businesses respond by laying off workers. Laws restricting layoffs make businesses less likely to hire in the first place leaving many young people unemployed and unable to find work.
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Seasonal unemployment might be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques.
  
The results of both actions lead to less productivity and are claimed to incur a higher cost on society as a whole. The results lead to not just higher unemployment but may increase poverty. This is why the less market oriented countries of Europe often sustain substantially high unemployment rates in comparison to the United States; that is, government induced employment through policies designed to protect the worker. The welfare state then responds with various benefits that are paid for by the middle and upper class which reduces their ability to consume and is theorised to reduce the incentive to work hard and innovate. Economists like Ludwig Von Mises, Milton Friedman, Friedrich Von Hayek, and many others not only believe that the welfare of society decreases with this kind of intervention but that these economic policies are not sustainable.
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===Classical unemployment===
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In the case of classical unemployment, like that of cyclical unemployment, the number of job-seekers exceeds the number of vacancies. However, the problem here is not aggregate demand failure. In this situation, real wages are higher than the market-equilibrium wage. In simple terms, institutions such as the [[minimum wage]] deter employers from hiring all of the available workers, because the cost would exceed the [[technology|technologically]]-determined benefit of hiring them (the ''[[marginal product]] of labor''). Some economists theorize that this type of unemployment can be reduced by increasing the flexibility of wages (such as by abolishing minimum wages or by employee protection), to make the labor market more like a financial market.
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Conversely, making wages more flexible allows employers who are adequately staffed to pay less with no corresponding benefit to job-seekers. If one accepts that people with low incomes spend their money rapidly (out of necessity), more flexible wages may increase unemployment in the short term.
  
===Government spending as a cause or cure for unemployment===
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=== Marxian unemployment===  
Some economists have found high correlations between government spending as a percentage of GDP to unemployment from 1981 to the present using data from the Bureau of Labor Statistics. The correlation between government spending was actually negative during the 1940 to 1980 period; however, the [[Misery index (economics)|Misery Index]] was steadily rising during this period.
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As [[Karl Marx]] claimed, some unemployment&mdash;the "reserve army of the unemployed"&mdash;is normally needed in order to maintain work discipline in jobs, keep wages down, and protect business [[rate of profit|profitability]].<ref>David L. Prychitko, [http://www.econlib.org/Library/Enc/Marxism.html Marxism] Library of Economics & Liberty. Retrieved September 13, 2007.</ref> This point was later emphasized by economist Michal Kalecki.<ref> Michal Kalecki. New School. </ref> If profitability suffers a sustained depression, [[capitalism|capitalists]] can and will punish people by imposing a [[recession]] via their control over investment decisions (a ''[[capital strike]]''). (Incidentally, in this section the term "capitalist" is used to refer to a person who owns and controls economic [[capital (economics)|capital]], whether or not she or he holds "capitalist" political or ethical views.) To the [[Marxian]] school, these strikes are rare, since in normal times the government, responding to pressure from their most important constituencies, will encourage recessions before profits are hurt.  
  
These same economists state that the unemployment supply curve is actually vertical, that labor will work under any condition provided work is available, and the economic element with the most power to shift it is government.
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As with cyclical and classical unemployment, with Marxian unemployment, the number of jobless exceeds the availability of vacancies. It is the scarcity of jobs that gives unemployment such a motivational effect. However, simple demand stimulus in the face of the capitalists' refusal to hire or invest simply encourages inflation: if profits are being squeezed, the only way to maintain high production is via rising prices.
  
===Debate on causes of unemployment===
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To Marxists, this kind of unemployment cannot be abolished without overthrowing [[capitalism]] as an economic system and replacing it with [[democratic socialism]].  
There is considerable debate amongst [[economist]]s as to what the main causes of unemployment are. [[Keynesian economics]] emphasizes unemployment resulting from insufficient [[effective demand]] for goods and service in the economy ([[Unemployment types#Cyclical unemployment|cyclical unemployment]]). Others point to structural problems (inefficiencies) inherent in labour markets ([[Unemployment types#Structural unemployment|structural unemployment]]). [[Classical economics|Classical]] or [[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 may discourage the hiring of workers ([[Unemployment types#Classical unemployment|classical unemployment]]). Yet others see unemployment as largely due to voluntary choices by the unemployed (frictional unemployment). On the other extreme, Marxists see unemployment as a structural fact helping to preserve business profitability and capitalism (Marxian unemployment).  
 
  
Though there have been several definitions of '''voluntary''' (and '''involuntary''') unemployment in the economics literature, a simple distinction is often applied. Voluntary unemployment is attributed to the individual unemployed workers (and their decisions), whereas involuntary unemployment exists because of the socio-economic environment (including the market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment is voluntary, since it reflects individual search behavior. On the other hand, cyclical unemployment, structural unemployment, classical unemployment, and Marxian unemployment are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by the unemployed in the past, while classical unemployment may result from the legislative and economic choices made by labor unions and/or [[political party|political parties]]. So in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers even when wages are allowed to adjust, so that even if all vacancies were to be filled, there would be unemployed workers. This is the case of cyclical unemployment and Marxian unemployment, for which macroeconomic forces lead to microeconomic unemployment. For more details, see [[unemployment types]].
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A similar conception to this was advanced by Stiglitz and Shapiro (1983) when they considered shirking in employment. They concluded that unemployment is required to motivate workers to put effort into their work. This perhaps represents the incorporation of this idea into modern microfounded [[macroeconomics]].
  
Some say that one of the main causes of unemployment in a free market economy is the fact that the law of supply and demand is not really applied to the price to be paid for employing people. In situations of falling demand for products & services the wages of all employees (from president to errand boy) are not automatically reduced by the required percentage to make the business viable. Others say that it is the market that determines the wages based on the desirability of the job. The more people qualified and interested in the job, the lower the wages for that job become. Based on this view, the profitability of the company is not a factor in determining whether or not the work is profitable to the employee.  People are laid off, because pay reductions would reduce the number of people willing to work a job. With fewer people interested in a particular job, the employees bargaining power would actually rise to stabilize the situation, but their employer would be unable to fulfill their wage expectations. In the classical framework, such unemployment is due to the existing legal framework, along with interferences with the market by non-market institutions such as labor unions and government. Others say many of the problems with market adjustment arise from the market itself (Keynes) or from the nature of capitalism (Marx).
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==Full employment==
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[[Image:NAIRU-SR-and-LR.svg|thumb|right|300px|Short-Run Phillips Curve before and after Expansionary Policy, with Long-Run Phillips Curve (NAIRU)]]
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In theory, it is possible to abolish cyclical unemployment by increasing the aggregate demand for products and workers. However, eventually the economy hits an "inflation barrier" imposed by the four other (supply-side) kinds of unemployment to the extent that they exist.  
  
In developing countries, unemployment is often caused by burdensome government regulation. The World Bank's Doing Business project shows how excessive labor regulation increases unemployment among women and youths in Africa, the Middle East and Latin America.
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Some economists see the inflation barrier as corresponding to the natural rate of unemployment, where the "natural" rate of unemployment is defined as the rate of unemployment that exists when the labor market is in equilibrium and there is pressure for neither rising [[inflation]] rates nor falling inflation rates.<ref>[http://www.economicshelp.org/macroeconomics/unemployment/natural_rate.html Natural Rate of Unemployment] Economics Help. Retrieved September 13, 2007.</ref> More scientifically, this rate is sometimes referred to as the [[NAIRU]] or the Non-Accelerating Inflation Rate of Unemployment
  
==Types of unemployment==
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This means that if the unemployment rate gets "too low," inflation will get worse and worse (accelerate) in the absence of wage and price controls (incomes policies). Others simply see the possibility of inflation rising as the unemployment rate falls. This is the famous [[Phillips curve]].
{{main|unemployment types}}
 
{{main|Graduate unemployment}}
 
{{Mergefrom|Graduate unemployment|date=June 2007}}
 
; Frictional : When moving from one job to another, the unemployment temporarily experienced when looking for a new job.
 
; Structural : Caused by a mismatch between the location of jobs and the location of job-seekers. "Location" may be geographical, or in terms of skills. The mismatch comes because unemployed are unwilling or unable to change geography or skills.
 
; Cyclical (Demand deficient unemployment) unemployment : When there is not enough aggregate demand for the labor. Caused by a [[business cycle]] recession.
 
; Technological : Caused by the replacement of workers by machines or other advanced technology.
 
; Classical (real-wage) : When real wages for a job are set above the market-clearing level, commonly government (as with the minimum wage) or unions, although some (such as [[Murray Rothbard]], ''[[America's Great Depression]]'' p. 45) suggest that even social taboos can prevent wages from falling to the market clearing level.
 
; Marxian : When unemployment is needed to motivate workers to work hard and to keep wages down.
 
; Seasonal : When an occupation is not in demand at certain seasons. For example, construction workers in winter, ski instructors in summer.
 
  
== Measuring Unemployment ==
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One of the major problems with the NAIRU theory is that no-one knows exactly what the NAIRU is (while it clearly changes over time). The margin of error can be quite high relative to the actual unemployment rate, making it hard to use the NAIRU in policy-making.
  
Though many people care about the number of unemployed, economists typically focus on the unemployment rate. This corrects for the normal increase in the number of people employed due to population increases and increases in the labor force relative to the population &mdash; and thus the normal increase in the number of unemployed workers.
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Another, normative, definition of full employment might be called the ''ideal'' unemployment rate. It would exclude all types of unemployment that represent forms of inefficiency. This type of "full employment" unemployment would correspond to only frictional unemployment and would thus be very low. However, it would be impossible to attain this full-employment target using only demand-side Keynesian stimulus without getting below the NAIRU and suffering from accelerating inflation (absent incomes policies). Training programs aimed at fighting structural unemployment would help here.  
  
The unemployment rate is expressed as a percent, and calculated as follows:
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Another problem for full employment is "graduate unemployment" in which all jobs for the educated have been filled, leaving a glut of overqualified people to compete for too few jobs.
 
 
<math>Unemployment\ Rate = \frac{Unemployed\ Workers}{Total\ Labour\ Force} * 100</math>
 
  
As defined by the [[International Labour Organization]], "unemployed workers" are those who are currently not working but are willing and able to work for pay, currently available to work, and have actively searched for work.<ref>International Labour Organization, Bureau of Statistics,[http://www.ilo.org/public/english/bureau/stat/download/res/ecacpop.pdf The Thirteenth International Conference of Labour Statisticians], received July 21, 2007</ref>  The civilian labor force ("total labor force") is the sum of all workers, both unemployed and employed - all those willing and able to work for pay.
+
==Causes==
 +
There is considerable debate amongst [[economics|economist]]s as to what the main causes of unemployment are. [[Keynesian economics]] emphasizes unemployment resulting from insufficient [[effective demand]] for goods and service in the economy ([[Unemployment#Cyclical unemployment|cyclical unemployment]]). Others point to structural problems (inefficiencies) inherent in labor markets ([[Unemployment#Structural unemployment|structural unemployment]]). [[Classical economics|Classical]] or [[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 may discourage the hiring of workers ([[Unemployment#Classical unemployment|classical unemployment]]). Yet others see unemployment as largely due to voluntary choices by the unemployed (frictional unemployment). On the other extreme, [[Marxism|Marxists]] see unemployment as a structural fact helping to preserve business profitability and capitalism ([[Unemployment#Marxian unemployment|Marxian unemployment]]).  
  
The [[International Labor Organization| ILO]] describes 4 different methods to calculate the unemployment rate:<ref>International Labour Organization, LABORSTA,[http://laborsta.ilo.org/applv8/data/c3e.html], retrieved July 22,2007</ref>
+
Though there have been several definitions of "voluntary" (and "involuntary") unemployment in the economics literature, a simple distinction is often applied. Voluntary unemployment is attributed to the individual unemployed workers (and their decisions), whereas involuntary unemployment exists because of the socio-economic environment (including the market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment is voluntary, since it reflects individual search behavior. On the other hand, cyclical unemployment, structural unemployment, classical unemployment, and Marxian unemployment are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by the unemployed in the past, while classical unemployment may result from the legislative and economic choices made by labor unions and/or [[political party|political parties]]. So in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers even when wages are allowed to adjust, so that even if all vacancies were to be filled, there would be unemployed workers. This is the case of cyclical unemployment and Marxian unemployment, for which macroeconomic forces lead to microeconomic unemployment.
*''Labour Force Sample Surveys'' are the most preferred method of unemployment rate calculation since they give the most comprehensive results and enables calculation of unemployment by different group categories such as race and gender.  This method is the most internationally comparable.
 
*''Official Estimates'' are determined by a combination of information from one or more of the other three methods. The use of this method has been declining in favor of Labour Surveys.
 
*''Social Insurance Statistics'' such as unemployment benefits, are computed base on the number of persons insured representing the total labour force and the number of persons who are insured that are collecting benefits.  This method has been heavily criticized due to the expiration of benefits before the person finds work.
 
*''Employment Office Statistics'' are the least effective being that they only include a monthly tally of unemployed persons who enter employment offices. This method also includes unemployed who are not unemployed per the [[International Labour Organization| ILO]] definition.
 
  
===European Union (Eurostat)===
+
Some say that one of the main causes of unemployment in a free market economy is the fact that the law of supply and demand is not really applied to the price to be paid for employing people. In situations of falling demand for products and services the wages of all employees (from president to errand boy) are not automatically reduced by the required percentage to make the business viable. Others say that it is the market that determines the wages based on the desirability of the job. The more people qualified and interested in the job, the lower the wages for that job become. Based on this view, the profitability of the company is not a factor in determining whether or not the work is profitable to the employee. People are laid off, because pay reductions would reduce the number of people willing to work a job. With fewer people interested in a particular job, the employees' bargaining power would actually rise to stabilize the situation, but their employer would be unable to fulfill their wage expectations. In the classical framework, such unemployment is due to the existing legal framework, along with interferences with the market by non-market institutions such as labor unions and government. Others say many of the problems with market adjustment arise from the market itself (Keynes) or from the nature of capitalism (Marx).
  
[[Eurostat]], the statistical office of the [[European Union]], defines unemployed as those persons age 15 to 74 who are not working, have looked for work in the last four weeks, and ready to start work within two weeks, which conform to [[International Labour Office| ILO]] standards.  Both the actual count and rate of employment are reported.  Statistical data is available by member state, EU12, EU15, EU25, EU27, EA11, and EA13.  Eurostat also includes a long-term unemployment rate.  This is defined as part of the unemployed who have been unemployed for an excess of 1 year.<ref>[http://europa.eu.int/estatref/info/sdds/en/une/une_sm.htm#concepts European Commission, Eurostat], retrieved July 23, 2007</ref>
+
In developing countries, unemployment is often caused by burdensome government regulation. The [[World Bank]]'s Doing Business project shows how excessive labor regulation increases unemployment among women and youths in [[Africa]], the [[Middle East]], and [[Latin America]].<ref>[http://rru.worldbank.org/Documents/DoingBusiness/2004/DB2004-full-report.pdf Doing Business] World Bank. Retrieved September 13, 2007.</ref>
  
Three methods of data collection are used in the European Union.  The European Union Labour Force Survey (EU-LFS) collects data on all member states each quarter.  For monthly calculations, national surveys or national registers from employment offices are used in conjunction with quarterly EU-LFS data. Monthly unemployment rates are interpolated from monthly data from member states to provide "harmonised data".<ref>[http://europa.eu.int/estatref/info/sdds/en/une/une_sm.htm#compilation European Commission, Eurostat], retrieved July 23, 2007</ref>
+
==Effects==
 +
[[Image:Us unemployment rates 1950 2005.png|thumb|right|250px|Unemployment rate (as a percentage of the labor force) in the [[United States]]. Data source: U.S. [[Bureau of Labor Statistics]].]]
  
At this time, [[Germany]]'s unemployment data is collected separately from the (EU-LFS).
+
===Individual costs===
 +
In the absence of a job when a person needs one, it can be difficult to meet financial obligations such as purchasing food to feed oneself and one's family, and paying one's bills; failure to make [[mortgage]] payments or to pay [[rent]] may lead to [[homelessness]] through [[foreclosure]] or [[eviction]]. Being unemployed, and the financial difficulties and loss of [[health insurance]] benefits that come with it, may cause malnutrition and illness, and are major sources of mental stress and loss of [[self-esteem]] which may lead to [[Clinical depression|depression]], which may have a further negative impact on [[health]].  
  
===United States Bureau of Labor Statistics===
+
Lacking a job often means lacking social contact with fellow employees, a purpose for many hours of the day, lack of self-esteem, mental stress and illness, and of course, the inability to pay bills and to purchase both necessities and luxuries. The latter is especially serious for those with family obligations, debts, and/or medical costs, where the availability of health insurance is often linked to holding a job. Rising unemployment increases the [[crime]] rate, the [[suicide]] rate, and causes a decline in healthiness.<ref>[http://ashleymac.econ.vt.edu/ashley/3204/brenner.pdf Fact sheet on the impact of unemployment] Virginia Tech, Department of Economics. Retrieved May 25, 2007.</ref>
  
There was an official measure of 6.8 million unemployed in the U.S. as of April 2007<ref name=uslaborstats>U.S. Department of Labor, Bureau of Labor Statistics, "[http://www.bls.gov/news.release/pdf/empsit.pdf The Employment Situation: April 2007]", April 2007</ref>
+
Another cost for the unemployed is that the combination of unemployment, lack of financial resources, and social responsibilities may push unemployed workers to take jobs that do not fit their skills or allow them to use their talents. That is, unemployment can cause [[underemployment]]. This is one of the economic arguments in favor of having unemployment insurance.
  
The official unemployment rate was 4.5% as of April 2007<ref name=uslaborstats/>
+
This feared "cost of job loss" can spur psychological anxiety, weaken [[labor union]]s and their members' sense of solidarity, encourage greater work-effort and lower wage demands, and/or abet [[protectionism]]. This last means efforts to preserve existing jobs (of the "insiders") via barriers to entry against "outsiders" who want jobs, legal obstacles to [[immigration]], and/or [[tariff]]s and similar [[trade barrier]]s against foreign competitors. The impact of unemployment on the employed is related to the idea of [[Unemployment#Marxian unemployment|Marxian unemployment]]. Finally, the existence of significant unemployment raises the [[oligopsony]] power of one's employer: that raises the cost of quitting one's job and lowers the probability of finding a new source of livelihood.
  
[[Image:USA states unemployment 2004.PNG|thumb|Unemployment rate for US states in 2004]]The [[Bureau of Labor Statistics]] counts employment and unemployment (of those over 16 years of age) using a labor force survey.<ref> United States, Bureau of Labor Statistics,[http://www.bls.gov/cps/cps_faq.htm], retrieved July 23, 2007</ref>There are two permanent government projects conducted by the [[United States Census Bureau]] (within the [[United States Department of Commerce]]) and/or the [[Bureau of Labor Statistics]] (within the [[United States Department of Labor]]) that gather employment statistics monthly.  One is the [[Current Population Survey]] (CPS) which surveys 60,000 households: it is used in calculating the unemployment rate.<ref>U.S. Department of Labor, Bureau of Labor Statistics, [http://www.bls.gov/cps/cps_over.htm#overview Current Population Survey overview], retrieved May 25, 2007</ref><ref name=uslaborstats/> The other is the Current Employment Statistics (CES) which surveys 160,000 employers.<ref name=uslaborstats/>  These two sources have different classification criteria, and usually produce differing results. Additional data is also available from the government, such as the unemployment insurance weekly claims report available from the Office of Workforce Security, within the U.S. Department of Labor Employment & Training Administration.<ref>U.S. Department of Labor, Employment & Training Administration, Office of Workforce Security, [http://workforcesecurity.doleta.gov/unemploy/claims_arch.asp UI Weekly Claims]</ref>
+
===Economic benefits of unemployment===
 
+
Unemployment may have advantages as well as disadvantages for the overall economy. Notably, it may help avert runaway [[inflation]], which negatively affects almost everyone in the affected economy and has serious long-term economic costs. However the historic assumption that full local employment must lead directly to local inflation has been attenuated, as recently expanded international trade has shown itself able to continue to supply low-priced goods even as local employment rates rise closer to full employment.  
It is important to note that these statistics are for the U.S. economy as a whole, hiding variations among groups. For April 2007 in the U.S., the unemployment rates for the major worker groups were as follows:<ref name=uslaborstats/>
 
 
 
* adult men: 4.0 %
 
* adult women: 3.8 %
 
* Caucasians: 3.9 %
 
* Hispanics or Latinos (all races): 5.4 %
 
* African American Descent: 8.2 %
 
* teenagers: 15.3 %
 
 
 
These percentages represent the usual rough ranking of these different groups' unemployment rates.  The absolute numbers change over time and with the [[business cycle]]. The Bureau of Labor Statistics provides up-to-date numbers via a pdf linked [http://www.bls.gov/news.release/pdf/empsit.pdf here.]  The BLS also provides a readable concise current [http://stats.bls.gov/news.release/empsit.nr0.htm Employment Situation Summary,]updated monthly.
 
 
 
=== Limitations of the Unemployment Definition ===
 
 
 
The unemployment rate may be different from the impact of the economy on people. The unemployment figures indicate how many are not working for pay but seeking employment for pay. It is only indirectly connected with the number of people who are actually not working at all or working without pay. Therefore, critics believe that current methods of measuring unemployment are inaccurate in terms of the impact of unemployment on people as these methods do not take into account:
 
 
 
* The 1.5% of the available working population incarcerated in U.S. prisons (who may or may not be working while incarcerated).
 
* Those who have lost their jobs and have become [[discouraged worker|discouraged]] over time from actively looking for work.
 
* Those who are [[self-employed]] or wish to become self-employed, such as tradesmen or building contractors or IT consultants.
 
* Those who have retired before the official retirement age but would still like to work (involuntary early retirees).
 
* Those on [[disability]] pensions who, while not possessing full health, still wish to work in occupations suitable for their medical conditions.
 
* Those who work for payment for as little as one hour per week but would like to work full-time. These people are "involuntary part-time" workers.
 
* Those who are underemployed, e.g., a computer programmer who is working in a retail store until he can find a permanent job.
 
* Involuntary stay-at-home mothers who would prefer to work.
 
* Graduate and Professional school students who were unable to find worthwhile jobs after they graduated with their Bachelor's degrees.
 
 
 
On the other hand, the measures of employment and unemployment may be "too high". In some countries, the availability of [[unemployment benefits]] can inflate statistics since they give an incentive to register as unemployed. People who do not really seek work may choose to declare themselves unemployed so as to get benefits; people with undeclared paid occupations may try to get unemployment benefits in addition to the money they earn from their work. Conversely, the absence of any tangible benefit for registering as unemployed discourages people from registering.
 
 
 
However, in countries such as the United States, Canada, Mexico, Australia, Japan and the European Union, unemployment is measured using a sample survey (akin to a Gallup poll). According to the BLS, a number of Eastern European nations have instituted labor force surveys as well. The sample survey has its own problems because the total number of workers in the economy is calculated based on a sample rather than a census.
 
 
 
It is possible to be neither employed nor unemployed by ILO definitions, i.e., to be outside of the "labor force." These are people who have no job and are not looking for one. Many of these are going to school or are retired. Family responsibilities keep others out of the labor force. Still others have a physical or mental disability which prevents them from participating in labor force activities.
 
 
 
Typically, employment and the labor force include only work done for monetary gain. Hence, a [[homemaker]] is neither part of the labor force nor unemployed. Nor are full-time students nor prisoners considered to be part of the labor force or unemployment. The latter can be important. In 1999, economists Lawrence F. Katz and Alan B. Krueger estimated that increased incarceration lowered measured unemployment in the United States by 0.17 percent between 1985 and the late 1990s. In particular, as of 2005, roughly 0.7% of the US population is incarcerated (1.5% of the available working population).
 
 
 
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.
 
  
For the fourth quarter of 2004, according to [[Organisation for Economic Co-operation and Development|OECD]], (source [http://www.oecd.org/dataoecd/36/30/35024561.pdf Employment Outlook 2005 ISBN 92-64-01045-9]), normalized unemployment for men aged 25 to 54 was 4.6% in the USA and 7.4% in [[France]]. At the same time and for the same population the employment rate (number of workers divided by population) was 86.3% in the USA and 86.7% in France.
+
The inflation-fighting benefits to the ''entire economy'' arising from a presumed optimum level of unemployment have been studied extensively. Before current levels of world trade were developed, unemployment was demonstrated to reduce inflation, following the [[Phillips curve]], or to decelerate inflation, following the NAIRU/[[natural rate of unemployment]] theory.  
  
This example shows that the unemployment rate is 60% higher in France than in the USA, yet more people in this demographic are working in France than in the USA, which is counterintuitive if it is expected that the unemployment rate reflects the health of the labor market <ref> [http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=01&year=2007&base_name=wall_street_journal_gets_germa&162#comment-1679545 Dean Baker, Center for Economic and Policy Research]  </ref>.
+
Beyond the benefits of controlled inflation, [[Unemployment#Frictional unemployment|frictional unemployment]] provides employers a larger applicant pool from which to select employees better suited to the available jobs. The unemployment needed for this purpose may be very small, however, since it is relatively easy to seek a new job without losing one's current one. And when more jobs are available for fewer workers (lower unemployment), it may allow workers to find the jobs that better fit their tastes, talents, and needs.
  
In the early stages of an [[Boom and bust|economic boom]], unemployment often rises. 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 counted as unemployed. Similarly, during a [[recession]], the increase in the unemployment rate is moderated by people leaving the labor force.
+
As in the [[Marxian]] theory of unemployment, [[special interests]] may also benefit: some employers may expect that employees with no fear of losing their jobs will not work as hard, or will demand increased wages and benefit. According to this theory, unemployment may promote general [[Productivity (economics)|labor productivity]] and [[profit]]ability by increasing employers' [[monopsony]]-like power (and profits).
  
Due to these deficiencies, many [[labor economics|labor market]] economists prefer to look at a range of economic statistics such as:
+
Optimal unemployment has also been defended as an environmental tool to brake the constantly accelerated growth of the [[Gross Domestic Product|GDP]] to maintain levels sustainable in the context of resource constraints and environmental impacts. However the tool of denying jobs to willing workers seems a blunt instrument for conserving resources and the environment—it reduces the consumption of the unemployed across the board, and only in the short-term. Full employment of the unemployed workforce, all focused toward the goal of developing more environmentally efficient methods for production and consumption might provide a more significant and lasting cumulative environmental benefit and reduced resource consumption. If so, the future economy and workforce would benefit from the resultant structural increases in the sustainable level of GDP growth.
* Labor market participation rate (the percentage of people aged between 15 and 64 who are currently employed or searching for employment)
 
* The total number of full-time jobs in an economy
 
* The number of people seeking work as a raw number and not a percentage
 
* The total number of person-hours worked in a month compared to the total number of person-hours people would like to work
 
  
 
==Aiding the unemployed==
 
==Aiding the unemployed==
The most developed countries have aids for the unemployed as part of the welfare state. These unemployment benefits include unemployment insurance, welfare, [[unemployment compensation]] and subsidies to aid in retraining. The main goal of these programs is to alleviate short-term hardships and, more importantly, to allow workers more time to search for a good job.
+
The most developed countries have aids for the unemployed as part of the welfare state. These unemployment benefits include unemployment insurance, welfare, [[unemployment compensation]], and subsidies to aid in retraining. The main goal of these programs is to alleviate short-term hardships and, more importantly, to allow workers more time to search for a good job.
 
 
In the U.S., the unemployment insurance allowance one receives is based solely on previous income (not time worked, family size, etc.) and usually compensates for one-third of one's previous income. To qualify, one must reside in their respective state for at least a year and, of course, work. While 90% of citizens are covered on paper, only 40% could actually receive benefits as unemployment is based on an antiquated system created in the [[Social Security Act of 1935]]. In cases of highly seasonal industries the system provides income to workers during the off seasons, thus encouraging them to stay attached to the industry.  To calculate the unemployment insurance benefits you might receive, see the page at the [http://www.epinet.org/content.cfm/datazone_uicalc_index Economic Policy Institute].
 
 
 
In the United States, the [[New Deal]] made relief of the unemployed a high priority, with many different programs.  The goal of the [[Works Progress Administration]] (WPA) was to employ most of the unemployed people on relief until the economy recovered.  FERA/WPA director [[Harry Hopkins]] testified to Congress in January 1935 why he set the number at 3.5 million, using FERA data. At $1200 per worker per year he asked for and received $4 billion.
 
 
 
<blockquote>
 
"On January 1 there were 20 million persons on relief in the United States. Of these, 8.3 million were children under sixteen years of age; 3.8 million were persons who, though between the ages of sixteen and sixty-five were not working nor seeking work. These included housewives, students in school, and incapacitated persons. Another 750,000 were persons sixty-five years of age or over. Thus, of the total of 20 million persons then receiving relief, 12.85 million were not considered eligible for employment. This left a total of 7.15 million presumably employable persons between the ages of sixteen and sixty-five inclusive. Of these, however, 1.65 million were said to be farm operators or persons who had some non-relief employment, while another 350,000 were, despite the fact that they were already employed or seeking work, considered incapacitated. Deducting this two million from the total of 7.15 million, there remained 5.15 million persons sixteen to sixty-five years of age, unemployed, looking for work, and able to work. Because of the assumption that only one worker per family would be permitted to work under the proposed program, this total of 5.15 million was further reduced by 1.6 million—the estimated number of workers who were members of families which included two or more employable persons. Thus, there remained a net total of 3.55 million workers in as many households for whom jobs were to be provided." [Howard p 562, paraphrasing Hopkins]
 
</blockquote>
 
 
 
The WPA did not quite reach 3.5 million—its maximum was 3.3 million in November 1938. Worker pay was based on three factors: the region of the country, the degree of urbanization and the individual's skill.  It varied from $19/month to $94/month.  The goal was to pay the local prevailing wage, but to limit a person to 30 hours or less a week of work. About 75 percent of WPA employment and 75 percent of WPA expenditures went to public infrastructure, such as highways, airports, parks and libraries.
 
 
 
The WPA had numerous critics who said that political considerations helped decide which states received the most funding. Civil rights leaders often complained that African Americans were proportionally underrepresented.  In New Jersey, they argued, "In spite of the fact that Negroes indubitably constitute more than 20 per cent of the State's unemployed, they composed 15.9 per cent of those assigned to W.P.A. jobs during 1937." [Howard 287] Nationwide in late 1937, 15.2% were African American.  The NAACP magazine ''Opportunity'' hailed the WPA: [February, 1939, p. 34. in Howard 295]
 
 
 
<blockquote>
 
It is to the eternal credit of the administrative officers of the WPA that discrimination on various projects because of race has been kept to a minimum and that in almost every community Negroes have been given a chance to participate in the work program. In the South, as might have been expected, this participation has been limited, and differential wages on the basis of race have been more or less effectively established; but in the northern communities, particularly in the urban centers, the Negro has been afforded his first real opportunity for employment in white-collar occupations
 
</blockquote>
 
 
 
When unemployment disappeared in [[World War II]], and almost no one was eligible, Congress shut down the WPA in late 1943.
 
 
 
The statistics show:
 
{| class="wikitable"
 
|+ Families on relief 1935–41<br />
 
Relief cases 1936-1941<br />
 
Monthly average in 1,000
 
|-
 
! Year
 
! 1936
 
! 1937
 
! 1938
 
! 1939
 
! 1940
 
! 1941
 
|-
 
|colspan="7"| ''Workers employed''
 
|-
 
! WPA
 
| 1,995
 
| 2,227
 
| 1,932
 
| 2,911
 
| 1,971
 
| 1,638
 
|-
 
! CCC and NYA
 
| 712
 
| 801
 
| 643
 
| 793
 
| 877
 
| 919
 
|-
 
! Other federal work projects
 
| 554
 
| 663
 
| 452
 
| 488
 
| 468
 
| 681
 
|-
 
|colspan="7"| ''Public assistance cases''
 
|-
 
! Social security programs
 
| 602
 
| 1,306
 
| 1,852
 
| 2,132
 
| 2,308
 
| 2,517
 
|-
 
! General relief
 
| 2,946
 
| 1,484
 
| 1,611
 
| 1,647
 
| 1,570
 
| 1,206
 
|-
 
! Total families helped
 
| 5,886
 
| 5,660
 
| 5,474
 
| 6,751
 
| 5,860
 
| 5,167
 
|-
 
! Unemployed workers (Bur Lab Stat)
 
| 9,030
 
| 7,700
 
| 10,390
 
| 9,480
 
| 8,120
 
| 5,560
 
|-
 
! Coverage (cases/unemployed)
 
| 65%
 
| 74%
 
| 53%
 
| 71%
 
| 72%
 
| 93%
 
|}
 
source: Donald S. Howard, ''WPA and Federal Relief Policy.'' 1943 p 34.
 
{| class="wikitable"
 
|-
 
! Year
 
! Unemployment (% labor force)
 
|-
 
! 1933
 
| 24.9
 
|-
 
! 1934
 
| 21.7
 
|-
 
! 1935
 
| 20.1
 
|-
 
! 1936
 
| 16.9
 
|-
 
! 1937
 
| 14.3
 
|-
 
! 1938
 
| 19.0
 
|-
 
! 1939
 
| 17.2
 
|-
 
! 1940
 
| 14.6
 
|-
 
! 1941
 
| 9.9
 
|-
 
! 1942
 
| 4.7
 
|-
 
! 1943
 
| 1.9
 
|-
 
! 1944
 
| 1.2
 
|-
 
! 1945
 
| 1.9
 
|}
 
source: ''Historical Statistics US'' (1976) series D-86
 
 
 
==Is there such a thing as involuntary unemployment?==
 
 
 
"Classical" ("laissez-faire") economists prior to the world Depression of the 1930s, and "post-Keynesian" or "neoclassical" economists such as Milton Friedman in the contemporary era, have denied the existence of what ordinary people consider "true" unemployment; this is involuntary unemployment where the job-seeker, despite his efforts, cannot seem to find a job (after allowing for a reasonable period of time to negotiate the terms of employment with a new employer).
 
 
 
Classical/neo economics does not deny voluntary unemployment, such as taking a vacation or a personal choice to refuse "lousy" wages.
 
 
 
But, as regards involuntary unemployment, the classical/neoclassical theorist relies on "Say's law" which declares, in fine, that "markets clear" in an unfettered, unregulated laissez-faire economy: every seller will find a buyer at some strike price, every buyer will find a seller at some strike price, and "every Jack shall have his Jill" in a "free" market. Sellers and buyers may refuse the strike price but this is taken as personal decision which causes the selling, or buying, atom to leave the economic model.
 
 
 
This theory, this "law" relies heavily on the absence of government regulation and assumes a developed economy without sabotage where labor strikes, as opposed to strike (mutually agreed upon) prices, are illegal.
 
 
 
John Maynard Keynes, in The General Theory of Employment, Interest and Money, tried to demonstrate that Say's law did not work in the real world of the 1930s Depression because of oversaving and private investor timidity, and that in consequence people could be thrown out of work involuntarily without being able to find acceptable new jobs.
 
 
 
This theoretic oddity of the classical and neo theories has, post-Keynes, had a strong influence on government policy. Post-Keynes, the tendency is for government to curtail and eliminate unemployment benefits and "make-work" government jobs, and to encourage the job-seeker to use his imagination, both considering the job search a career in itself and becoming-willing to accept lower wages, new "careers", or even relocation to another city or country in order to fulfill the expectation created by Say's "law"...which tends to broaden the "market" to a national or global level far beyond that which most real people are comfortable with.
 
  
On the left, social theorists continue to question the distortions of community and, at times, personality, that result from the pragmatic consequences of this economic theorizing: on this, see Ehrenreich 2002 and 2006 (Barbara Ehrenreich, ''NICKEL AND DIMED: On (not) getting by in America'', Owl Books 2002: and ''BAIT AND SWITCH: The (Futile) Pursuit of the American Dream''). In a society committed on balance more to laissez-faire than to Keynesian full employment, job seekers (blue collar in Ehrenreich 2002: white collar, in Ehrenreich 2006) make the theory real by expanding their horizons of what constitutes an acceptable job and career.
+
In the United States, the [[New Deal]] made relief of the unemployed a high priority, with many different programs. The goal of the [[Works Progress Administration]] (WPA) was to employ most of the unemployed people on relief until the economy recovered.
  
Note, also, that involuntary unemployment doesn't exist in agrarian societies. Nor is it formally recognized to exist in underdeveloped but urban societies such as the mega-cities of Africa and of India/Pakistan, given that, in such societies, the suddenly unemployed person must meet his survival needs, by getting a new job quickly at any strike price, entrepreneurship, or joining the invisible economy of the hustler (Pierre Bourdieu, ''THE WEIGHT OF THE WORLD: Social Suffering in Contemporary Society'').
+
In the United States today, the unemployment insurance allowance one receives is based solely on previous income (not time worked, family size, or other such factors) and usually compensates for one-third of one's previous income. In cases of highly seasonal industries the system provides income to workers during the off seasons, thus encouraging them to stay attached to the industry.  
  
From the narrative standpoint, whether the stories we tell ourselves, the stories related by Ehrenreich, the narrative sociology of Bourdieu, or novels of social suffering such as John Steinbeck's ''[[Of Mice and Men]]'', involuntary unemployment certainly exists. Surprisingly, it is denied to exist in at least some classical and neo-classical, laissez-faire economic theories.
+
==Notes==
 
+
<references/>
Even more surprisingly, effective job seekers (unlike Ms. Ehrenreich in ''Bait and Switch'', who failed to get hired as a publicist on a pretend job hunt she performed to get material for her book) make a third step representing a "dialectical" advance over both classical/neo economists, and writers on the left: they narrate their search using the language of freedom of choice and taking responsibility (Bourdieu 2000) in a rather conservative register, and often seem to have more success when they do this instead of "whine".
 
 
 
==Benefits of unemployment==
 
Some critics of the "culture of work" such as anarchist [[Bob Black]] see employment as overemphasized culturally in modern countries.  Such critics often propose quitting jobs when possible, working less, reassessing the cost of living to this end, creation of jobs which are "fun" as opposed to "work," and creating cultural norms where work is seen as unhealthy.  These people advocate an "[[anti-work]]" ethic for life.
 
 
 
==See also==
 
* [[Unemployment benefit]]
 
* [[Employment rate]]
 
* [[List of countries by unemployment rate]]
 
* [[List of U.S. states by unemployment rate]]
 
* [[Poverty]]
 
* [[Employment Protection Legislation]]
 
{{commons|Category:Unemployment}}
 
  
 
==References==
 
==References==
 +
* Bix, Amy Sue. 2001. ''Inventing Ourselves Out of Jobs?: America's Debate over Technological Unemployment, 1929—1981.'' The Johns Hopkins University Press. ISBN 0801869137
 +
* Crane, David. 1981. ''Beyond the Monetarists: Post-Keynesian Alternatives to Rampant Inflation, Low Growth and High Unemployment.'' Lorimer. ISBN 0888625014
 +
* Gallie, Duncan. 2004. ''Resisting Marginalization: Unemployment Experience and Social Policy in the European Union.'' Oxford University Press. ISBN 0199271844
 +
* Jossa, Bruno. 1998. ''Inflation, Unemployment and Money: Interpretations of the Phillips Curve.'' Edward Elgar Publishing. ISBN 1858984572
 +
* Sautter, Udo. 2003. ''Three Cheers for the Unemployed: Government and Unemployment before the New Deal.'' Cambridge University Press. ISBN 0521533279
 +
* Vedder, Richard. 1997. ''Out of Work: Unemployment and Government in Twentieth-Century America.'' New York University Press. ISBN 0814787924
  
 
+
{{Credits|Unemployment|154199130|Graduate_unemployment|157145981|Unemployment_types|157044137}}
{{Credits|Unemployment|154199130|}}
 

Latest revision as of 02:16, 18 April 2023


An 1837 political cartoon about unemployment in the United States.
CIA figures for world unemployment rates, 2006

Unemployment is the condition of willing workers lacking jobs or "gainful employment." In economics, unemployment statistics measure the condition and extent of joblessness within an economy. A key measure is the unemployment rate, which is the number of unemployed workers divided by the total civilian labor force.

Unemployment in an economic sense has proved a surprisingly difficult thing to define, let alone "cure." This is because there are many different types of unemployment, which overlap and so confound measurement and analysis. Some economists argue that full employment is the natural and desirable state of any healthy society. Marxists in particular claim that it is capitalism and the greed of the capitalists that causes unemployment to continue. Others have noted that certain types of unemployment are natural, such as seasonal unemployment for those working in fields where the amount of work fluctuates, or when new graduates and those returning to the workforce are seeking jobs.

In the ideal, everyone who wishes to work should be able to work, thus contributing to the larger society as well as receiving compensation that pays for their individual and family needs. This does not mean that every member of society works continuously; naturally some are training for new jobs, while others may have taken a break from the workforce for various reasons, and others are in the process of making a transition from one career or geographical location to a new one. Additionally, on the demand side, there may be times when employers need fewer workers, and so need to lay off some of the workforce temporarily. What is important for the health of society and the well-being of its members is that when people are unemployed that they have sufficient financial support to maintain themselves, and the opportunity to obtain new employment within a reasonable time frame. In an ideal society where all people live for the sake of others not simply for their personal benefit, unemployment problems can be minimized and each person can find the way to make their contribution to society.

Overview

Most economists believe that some unemployment will occur no matter what actions are taken by the government. This can be just because there will likely always someone looking for a job who cannot find one because of lack of skills, lack of availability of desirable positions, or being unwilling to move to a new location among other reasons. Some economists argue that unemployment is even necessary for a fully functioning economy as it is the result of useful re-aligning of priorities within the economy.

Marx and his followers have argued against keeping a "reserve army of the unemployed" based on the belief that unemployment is simply maintained to oppress laborers through needless competition. Many remedies for high rates of unemployment exist. Governments can offer military enlistment, people can engage in volunteer work, training can be given to help people qualify for new jobs, and relocation programs can be provided to assist people in meeting employment needs outside of their present geographical locale.

Types

The Great Depression, represented here in Dorothea Lange's Migrant Mother, was characterized by a massive surge of cyclical unemployment. It made most of even those with jobs miserable and encouraged mass poverty.

Economists distinguish between five major kinds of unemployment: cyclical, frictional, structural, classical, and Marxian. Real-world unemployment may combine different types, such that all five might exist at one time. The magnitude of each is difficult to measure, because they overlap and are thus hard to separate from each other.

Cyclical unemployment

Cyclical unemployment exists due to inadequate effective aggregate demand. Its name is derived from its variation with the business cycle, though it can also be persistent, as during the Great Depression of the 1930s. Such unemployment results when Gross domestic product is not as high as potential output because of demand failure, due to (say) pessimistic business expectations which discourages private fixed investment spending. Low government spending or high taxes, underconsumption, or low exports compared to imports may also have this result.

Some consider this type of unemployment one type of frictional unemployment in which factors causing the friction are partially caused by some cyclical variables. For example, a surprise decrease in the money supply may shock participants in society. Then, we may see recession and cyclical unemployment until expectations adjust to the new conditions.

In this case, the number of unemployed workers exceeds the number of job vacancies, so that if even all open jobs were filled, some workers would remain unemployed. 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 non-governmental spending by lowering interest rates.

Classical economists reject the conception of cyclical unemployment as inevitable, seeing the attainment of full employment of resources and potential output as the normal state of affairs.

Frictional unemployment

Frictional unemployment involves people being temporarily between jobs, while searching for new ones; it is compatible with full employment. (It is sometimes called "search unemployment" and is seen as largely voluntary.) It arises because either employers fire workers or workers quit, usually because the individual characteristics of the workers do not fit the particular characteristics of the job (including matters of the employer's personal taste or the employee's inadequate work effort). Sometimes new entrants (such as graduating students) and re-entrants (such as former homemakers) suffer from spells of frictional unemployment.

Some employers—such as fast-food restaurants, chain stores, and job providers in secondary labor markets—use management strategies that rely on rapid turnover of employees, so that frictional unemployment is normal in these sectors.

This type of unemployment coincides with an equal number of vacancies and cannot be solved using aggregate demand stimulation. The best way to lower this kind of unemployment is to provide more and better information to job-seekers and employers, perhaps through centralized job-banks (as in some countries in Europe). In theory, an economy could also be shifted away from emphasizing jobs that have high turnover, perhaps by using tax incentives or worker-training programs.

But some frictional unemployment is beneficial, since it allows workers to obtain the jobs that best fit their wants and skills and the employers to find employees who promote profit goals the most. It is a small percentage of the unemployment, however, since workers can often search for new jobs while employed—and employers can seek new employees before firing current ones.

One kind of frictional unemployment is called "wait unemployment" and refers to the effects of the existence of some sectors where employed workers are paid more than the market-clearing equilibrium wage. Not only does this restrict the amount of employment in the high-wage sector, but it attracts workers from other sectors who "wait" to try to get jobs there. The main problem with this theory is that such workers will likely "wait" while having jobs, so that they are not counted as unemployed.

Another type of frictional unemployment is "seasonal unemployment" where specific industries or occupations are characterized by seasonal work which may lead to unemployment. Examples include workers employed during farm harvest times or those working winter jobs on the ski slopes or summer jobs such as life-guarding at pools and agricultural labor.

Structural unemployment

Structural unemployment involves a mismatch between the "good" workers looking for jobs and the vacancies available. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers lack the skills needed for the jobs—or are in the wrong part of the country or world to take the jobs offered. It is a mismatch of skills and opportunities due to the structure of the economy changing. That is, it is very expensive to unite the workers with jobs. One possible example in the rich countries is the combination of the shortage of nurses with an excess labor supply in information technology. Unemployed programmers cannot easily become nurses, because of the need for new specialized training, the willingness to switch into the available jobs, and the legal requirements of such professions.

Structural unemployment is a result of the dynamic changes such as technological change and the fact that labor markets can never be as fluid as (say) financial markets. Workers are "left behind" due to costs of training and moving (such as the cost of selling one's house in a depressed local economy), plus inefficiencies in the labor markets, including discrimination.

Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. It is also more painful. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.

Some sort of direct attack on the problems of the labor market—such as training programs, mobility subsidies, anti-discrimination policies, a Basic Income Guarantee, and/or a Citizen's Dividend—seems required. The latter provide a "cushion" of income which allows a job-seeker to avoid simply taking the first job offered and to find a vacancy which fits the worker's skills and interests. These policies may be reinforced by the maintenance of high aggregate demand, so that the two types of policy are complementary.

Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while finding their skills (including job-searching skills) become "rusty" and obsolete. Problems with debt may lead to homelessness and a fall into the vicious circle of poverty. This means that they may not fit the job vacancies that are created when the economy recovers. The implication is that sustained high demand may lower structural unemployment. However, it also may encourage inflation, so some kind of incomes policies (wage and price controls) may be needed, along with the kind of labor-market policies mentioned in the previous paragraph. (This theory of rising structural unemployment has been referred to as an example of path dependence or "hysteresis.")

Much "technological unemployment" (such as due to the replacement of workers by robots) might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labor productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with this problem suggests that this problem is instead one of cyclical unemployment. As indicated by Okun's Law, the demand side must grow sufficiently quickly to absorb not only the growing labor force but also the workers made redundant by increased labor productivity. Otherwise, we see a "jobless recovery" such as those seen in the United States in both the early 1990s and the early 2000s.

Seasonal unemployment might be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques.

Classical unemployment

In the case of classical unemployment, like that of cyclical unemployment, the number of job-seekers exceeds the number of vacancies. However, the problem here is not aggregate demand failure. In this situation, real wages are higher than the market-equilibrium wage. In simple terms, institutions such as the minimum wage deter employers from hiring all of the available workers, because the cost would exceed the technologically-determined benefit of hiring them (the marginal product of labor). Some economists theorize that this type of unemployment can be reduced by increasing the flexibility of wages (such as by abolishing minimum wages or by employee protection), to make the labor market more like a financial market. Conversely, making wages more flexible allows employers who are adequately staffed to pay less with no corresponding benefit to job-seekers. If one accepts that people with low incomes spend their money rapidly (out of necessity), more flexible wages may increase unemployment in the short term.

Marxian unemployment

As Karl Marx claimed, some unemployment—the "reserve army of the unemployed"—is normally needed in order to maintain work discipline in jobs, keep wages down, and protect business profitability.[1] This point was later emphasized by economist Michal Kalecki.[2] If profitability suffers a sustained depression, capitalists can and will punish people by imposing a recession via their control over investment decisions (a capital strike). (Incidentally, in this section the term "capitalist" is used to refer to a person who owns and controls economic capital, whether or not she or he holds "capitalist" political or ethical views.) To the Marxian school, these strikes are rare, since in normal times the government, responding to pressure from their most important constituencies, will encourage recessions before profits are hurt.

As with cyclical and classical unemployment, with Marxian unemployment, the number of jobless exceeds the availability of vacancies. It is the scarcity of jobs that gives unemployment such a motivational effect. However, simple demand stimulus in the face of the capitalists' refusal to hire or invest simply encourages inflation: if profits are being squeezed, the only way to maintain high production is via rising prices.

To Marxists, this kind of unemployment cannot be abolished without overthrowing capitalism as an economic system and replacing it with democratic socialism.

A similar conception to this was advanced by Stiglitz and Shapiro (1983) when they considered shirking in employment. They concluded that unemployment is required to motivate workers to put effort into their work. This perhaps represents the incorporation of this idea into modern microfounded macroeconomics.

Full employment

Short-Run Phillips Curve before and after Expansionary Policy, with Long-Run Phillips Curve (NAIRU)

In theory, it is possible to abolish cyclical unemployment by increasing the aggregate demand for products and workers. However, eventually the economy hits an "inflation barrier" imposed by the four other (supply-side) kinds of unemployment to the extent that they exist.

Some economists see the inflation barrier as corresponding to the natural rate of unemployment, where the "natural" rate of unemployment is defined as the rate of unemployment that exists when the labor market is in equilibrium and there is pressure for neither rising inflation rates nor falling inflation rates.[3] More scientifically, this rate is sometimes referred to as the NAIRU or the Non-Accelerating Inflation Rate of Unemployment

This means that if the unemployment rate gets "too low," inflation will get worse and worse (accelerate) in the absence of wage and price controls (incomes policies). Others simply see the possibility of inflation rising as the unemployment rate falls. This is the famous Phillips curve.

One of the major problems with the NAIRU theory is that no-one knows exactly what the NAIRU is (while it clearly changes over time). The margin of error can be quite high relative to the actual unemployment rate, making it hard to use the NAIRU in policy-making.

Another, normative, definition of full employment might be called the ideal unemployment rate. It would exclude all types of unemployment that represent forms of inefficiency. This type of "full employment" unemployment would correspond to only frictional unemployment and would thus be very low. However, it would be impossible to attain this full-employment target using only demand-side Keynesian stimulus without getting below the NAIRU and suffering from accelerating inflation (absent incomes policies). Training programs aimed at fighting structural unemployment would help here.

Another problem for full employment is "graduate unemployment" in which all jobs for the educated have been filled, leaving a glut of overqualified people to compete for too few jobs.

Causes

There is considerable debate amongst economists as to what the main causes of unemployment are. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and service in the economy (cyclical unemployment). Others point to structural problems (inefficiencies) inherent in labor markets (structural unemployment). Classical or 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 may discourage the hiring of workers (classical unemployment). Yet others see unemployment as largely due to voluntary choices by the unemployed (frictional unemployment). On the other extreme, Marxists see unemployment as a structural fact helping to preserve business profitability and capitalism (Marxian unemployment).

Though there have been several definitions of "voluntary" (and "involuntary") unemployment in the economics literature, a simple distinction is often applied. Voluntary unemployment is attributed to the individual unemployed workers (and their decisions), whereas involuntary unemployment exists because of the socio-economic environment (including the market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment is voluntary, since it reflects individual search behavior. On the other hand, cyclical unemployment, structural unemployment, classical unemployment, and Marxian unemployment are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by the unemployed in the past, while classical unemployment may result from the legislative and economic choices made by labor unions and/or political parties. So in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers even when wages are allowed to adjust, so that even if all vacancies were to be filled, there would be unemployed workers. This is the case of cyclical unemployment and Marxian unemployment, for which macroeconomic forces lead to microeconomic unemployment.

Some say that one of the main causes of unemployment in a free market economy is the fact that the law of supply and demand is not really applied to the price to be paid for employing people. In situations of falling demand for products and services the wages of all employees (from president to errand boy) are not automatically reduced by the required percentage to make the business viable. Others say that it is the market that determines the wages based on the desirability of the job. The more people qualified and interested in the job, the lower the wages for that job become. Based on this view, the profitability of the company is not a factor in determining whether or not the work is profitable to the employee. People are laid off, because pay reductions would reduce the number of people willing to work a job. With fewer people interested in a particular job, the employees' bargaining power would actually rise to stabilize the situation, but their employer would be unable to fulfill their wage expectations. In the classical framework, such unemployment is due to the existing legal framework, along with interferences with the market by non-market institutions such as labor unions and government. Others say many of the problems with market adjustment arise from the market itself (Keynes) or from the nature of capitalism (Marx).

In developing countries, unemployment is often caused by burdensome government regulation. The World Bank's Doing Business project shows how excessive labor regulation increases unemployment among women and youths in Africa, the Middle East, and Latin America.[4]

Effects

Unemployment rate (as a percentage of the labor force) in the United States. Data source: U.S. Bureau of Labor Statistics.

Individual costs

In the absence of a job when a person needs one, it can be difficult to meet financial obligations such as purchasing food to feed oneself and one's family, and paying one's bills; failure to make mortgage payments or to pay rent may lead to homelessness through foreclosure or eviction. Being unemployed, and the financial difficulties and loss of health insurance benefits that come with it, may cause malnutrition and illness, and are major sources of mental stress and loss of self-esteem which may lead to depression, which may have a further negative impact on health.

Lacking a job often means lacking social contact with fellow employees, a purpose for many hours of the day, lack of self-esteem, mental stress and illness, and of course, the inability to pay bills and to purchase both necessities and luxuries. The latter is especially serious for those with family obligations, debts, and/or medical costs, where the availability of health insurance is often linked to holding a job. Rising unemployment increases the crime rate, the suicide rate, and causes a decline in healthiness.[5]

Another cost for the unemployed is that the combination of unemployment, lack of financial resources, and social responsibilities may push unemployed workers to take jobs that do not fit their skills or allow them to use their talents. That is, unemployment can cause underemployment. This is one of the economic arguments in favor of having unemployment insurance.

This feared "cost of job loss" can spur psychological anxiety, weaken labor unions and their members' sense of solidarity, encourage greater work-effort and lower wage demands, and/or abet protectionism. This last means efforts to preserve existing jobs (of the "insiders") via barriers to entry against "outsiders" who want jobs, legal obstacles to immigration, and/or tariffs and similar trade barriers against foreign competitors. The impact of unemployment on the employed is related to the idea of Marxian unemployment. Finally, the existence of significant unemployment raises the oligopsony power of one's employer: that raises the cost of quitting one's job and lowers the probability of finding a new source of livelihood.

Economic benefits of unemployment

Unemployment may have advantages as well as disadvantages for the overall economy. Notably, it may help avert runaway inflation, which negatively affects almost everyone in the affected economy and has serious long-term economic costs. However the historic assumption that full local employment must lead directly to local inflation has been attenuated, as recently expanded international trade has shown itself able to continue to supply low-priced goods even as local employment rates rise closer to full employment.

The inflation-fighting benefits to the entire economy arising from a presumed optimum level of unemployment have been studied extensively. Before current levels of world trade were developed, unemployment was demonstrated to reduce inflation, following the Phillips curve, or to decelerate inflation, following the NAIRU/natural rate of unemployment theory.

Beyond the benefits of controlled inflation, frictional unemployment provides employers a larger applicant pool from which to select employees better suited to the available jobs. The unemployment needed for this purpose may be very small, however, since it is relatively easy to seek a new job without losing one's current one. And when more jobs are available for fewer workers (lower unemployment), it may allow workers to find the jobs that better fit their tastes, talents, and needs.

As in the Marxian theory of unemployment, special interests may also benefit: some employers may expect that employees with no fear of losing their jobs will not work as hard, or will demand increased wages and benefit. According to this theory, unemployment may promote general labor productivity and profitability by increasing employers' monopsony-like power (and profits).

Optimal unemployment has also been defended as an environmental tool to brake the constantly accelerated growth of the GDP to maintain levels sustainable in the context of resource constraints and environmental impacts. However the tool of denying jobs to willing workers seems a blunt instrument for conserving resources and the environment—it reduces the consumption of the unemployed across the board, and only in the short-term. Full employment of the unemployed workforce, all focused toward the goal of developing more environmentally efficient methods for production and consumption might provide a more significant and lasting cumulative environmental benefit and reduced resource consumption. If so, the future economy and workforce would benefit from the resultant structural increases in the sustainable level of GDP growth.

Aiding the unemployed

The most developed countries have aids for the unemployed as part of the welfare state. These unemployment benefits include unemployment insurance, welfare, unemployment compensation, and subsidies to aid in retraining. The main goal of these programs is to alleviate short-term hardships and, more importantly, to allow workers more time to search for a good job.

In the United States, the New Deal made relief of the unemployed a high priority, with many different programs. The goal of the Works Progress Administration (WPA) was to employ most of the unemployed people on relief until the economy recovered.

In the United States today, the unemployment insurance allowance one receives is based solely on previous income (not time worked, family size, or other such factors) and usually compensates for one-third of one's previous income. In cases of highly seasonal industries the system provides income to workers during the off seasons, thus encouraging them to stay attached to the industry.

Notes

  1. David L. Prychitko, Marxism Library of Economics & Liberty. Retrieved September 13, 2007.
  2. Michal Kalecki. New School.
  3. Natural Rate of Unemployment Economics Help. Retrieved September 13, 2007.
  4. Doing Business World Bank. Retrieved September 13, 2007.
  5. Fact sheet on the impact of unemployment Virginia Tech, Department of Economics. Retrieved May 25, 2007.

References
ISBN links support NWE through referral fees

  • Bix, Amy Sue. 2001. Inventing Ourselves Out of Jobs?: America's Debate over Technological Unemployment, 1929—1981. The Johns Hopkins University Press. ISBN 0801869137
  • Crane, David. 1981. Beyond the Monetarists: Post-Keynesian Alternatives to Rampant Inflation, Low Growth and High Unemployment. Lorimer. ISBN 0888625014
  • Gallie, Duncan. 2004. Resisting Marginalization: Unemployment Experience and Social Policy in the European Union. Oxford University Press. ISBN 0199271844
  • Jossa, Bruno. 1998. Inflation, Unemployment and Money: Interpretations of the Phillips Curve. Edward Elgar Publishing. ISBN 1858984572
  • Sautter, Udo. 2003. Three Cheers for the Unemployed: Government and Unemployment before the New Deal. Cambridge University Press. ISBN 0521533279
  • Vedder, Richard. 1997. Out of Work: Unemployment and Government in Twentieth-Century America. New York University Press. ISBN 0814787924

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