3. Unemployment

What is Voluntary Unemployment

There are jobs available but the individual is not willing to work at current market wage rates

What is Involuntary Unemployment

When an individual is willing and able to work at current market wage rates but is unable to find employment

What is Cyclical Unemployment

Occurs when an economy goes into a recession and people cannot find work because aggregate demand is too low

What is Structural Unemployment

Long-term unemployment that occurs when the skills and location of the unemployed workers do not match the jobs available. Structural unemployment persists due to the occupational and geographical immobility of labour

What is Frictional Unemployment

Short-term unemployment when people are between jobs

What is Seasonal Unemployment

When people are unemployed at particular times of the year, for example, construction workers are more likely to be unemployed when the weather is bad during the winter

What is Real Wage Unemployment

Unemployment that results when the wage rate in some labour markets is set above the equilibrium wage rate, for example, as a consequence of a legal minimum wage or a high wage that is the outcome of collective bargaining and trade union power

Benefits of Unemployment

Greater Pool of Workers for Firms

Lower Inflation

Improved Current Account Position

Time for Workers to find Suitable Job

Costs of Unemployment

Lost Output

Deterioration of Government Finances

Social Costs

Costs to other countries

Lost Income

Hysterisis (Long term Unemployment, loss of skills so drop out of the labour force)

What is the Natural Rate of Unemployment

It is the rate of unemployment that exists when the labour market is in equilibrium. It includes frictional, structural and real wage unemployment

Determinants of the Natural Rate of Unemployment

Generous Benefits System

Excessive Labour Market Regulation

Lack of Transport/Housing Infrastructure

Lack of In Work Training