UNEMPLOYMENT
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Types of unemployment:
I. Cyclical- arising from lack of demand.
*NAIRU- non-accelerating inflation rate of unemployment.
The term NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment. It is a concept in economic theory significant in the interplay of macroeconomics and microeconomics. This "full employment" unemployment rate is sometimes termed the "inflation-threshold unemployment rate": Actual unemployment cannot fall below the NAIRU, and the inflation rate is likely to rise quickly (accelerate) in times of strong labor demands during periods of growth. It is sometimes referred to as the "natural rate of unemployment" as well, although this term describes an estimated unemployment rate derived from the market's actual performance while the NAIRU is calculated from the Philips Curve. The point at which the Philips curve, which relates unemployment to inflation, intersects the horizontal axis indicates the NAIRU. In terms of output, the NAIRU corresponds to potential output, the highest level of real gross domestic product that can be sustained at any one time. This is also called the "natural gross domestic product." wiki
People who are cyclically unemployed are normally suffering “ involuntary unemployment”. Employment and the labour force would procyclical (rising in booms and falling in slumps)
*Involuntary unemployment- when worker want to work at the going wage but can’t find a job.
*Voluntary unemployment-when at given level of wages, a worker wants to be in the labour force but does not wish accept job.
New Classical Theories
One new explanation of cyclical fluctuations in employment assumes that they are caused by fluctuations by willingness of people to supply their labour. In other words they believe that cyclically unemployed people are voluntary unemployed. That the supply curve fluctuates cyclically will lead to cyclical variations in employment. New classical explanation assumes that labour markets clear, and then look for reasons why employment fluctuates. Therefore they think that there is no involuntary unemployment.
New Keynesian Theories
New Keynesian Theories believe that many who are recorded as unemployed are involuntary unemployed in the sense that they would accept an offer of work in jobs for which they are trained, at the going wage rate, if such an offer made.
II. Frictional unemployment- is unemployment caused by people who are in-between jobs.
The normal turnover of labour causes frictional unemployment to persist, even if the economy is at potential output.
III. Structural unemployment- arises from mismatch of skills and job opportunities as the pattern of demand and supply changes.
*Mismatch occurs if the skills that firms demand differ from the skills the labour force possess.
According to New Classical view all structural unemployment is voluntary.
Private cost and benefits from unemployment:
When individuals are voluntary- the wage foregone by not working.
Benefits of involuntary- transfer payments from government; value of leisure; expect to get a better job.
Reducing unemployment.
Cyclical unemployment may be reduces bu raising Aggregate Demand. Frictional and structural unemployment may be reduced by making it easier to move between jobs, by slowing down the rate of change in the economy, and be raising the costs of staying unemployed.
Also there are three government policies for reducing unemployment: Fiscal policy, Monetary and Supply-side
I. Cyclical- arising from lack of demand.
*NAIRU- non-accelerating inflation rate of unemployment.
The term NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment. It is a concept in economic theory significant in the interplay of macroeconomics and microeconomics. This "full employment" unemployment rate is sometimes termed the "inflation-threshold unemployment rate": Actual unemployment cannot fall below the NAIRU, and the inflation rate is likely to rise quickly (accelerate) in times of strong labor demands during periods of growth. It is sometimes referred to as the "natural rate of unemployment" as well, although this term describes an estimated unemployment rate derived from the market's actual performance while the NAIRU is calculated from the Philips Curve. The point at which the Philips curve, which relates unemployment to inflation, intersects the horizontal axis indicates the NAIRU. In terms of output, the NAIRU corresponds to potential output, the highest level of real gross domestic product that can be sustained at any one time. This is also called the "natural gross domestic product." wiki
People who are cyclically unemployed are normally suffering “ involuntary unemployment”. Employment and the labour force would procyclical (rising in booms and falling in slumps)
*Involuntary unemployment- when worker want to work at the going wage but can’t find a job.
*Voluntary unemployment-when at given level of wages, a worker wants to be in the labour force but does not wish accept job.
New Classical Theories
One new explanation of cyclical fluctuations in employment assumes that they are caused by fluctuations by willingness of people to supply their labour. In other words they believe that cyclically unemployed people are voluntary unemployed. That the supply curve fluctuates cyclically will lead to cyclical variations in employment. New classical explanation assumes that labour markets clear, and then look for reasons why employment fluctuates. Therefore they think that there is no involuntary unemployment.
New Keynesian Theories
New Keynesian Theories believe that many who are recorded as unemployed are involuntary unemployed in the sense that they would accept an offer of work in jobs for which they are trained, at the going wage rate, if such an offer made.
II. Frictional unemployment- is unemployment caused by people who are in-between jobs.
The normal turnover of labour causes frictional unemployment to persist, even if the economy is at potential output.
III. Structural unemployment- arises from mismatch of skills and job opportunities as the pattern of demand and supply changes.
*Mismatch occurs if the skills that firms demand differ from the skills the labour force possess.
According to New Classical view all structural unemployment is voluntary.
Private cost and benefits from unemployment:
When individuals are voluntary- the wage foregone by not working.
Benefits of involuntary- transfer payments from government; value of leisure; expect to get a better job.
Reducing unemployment.
Cyclical unemployment may be reduces bu raising Aggregate Demand. Frictional and structural unemployment may be reduced by making it easier to move between jobs, by slowing down the rate of change in the economy, and be raising the costs of staying unemployed.
Also there are three government policies for reducing unemployment: Fiscal policy, Monetary and Supply-side
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