Unemployment

Definition and Consequences

• Unemployment is a situation where people are actively looking for a job but cannot find one.

• It leads to lost economic output, reducing national income and tax revenue.

• Lower living standards, poverty, financial stress, and reduced quality of life are consequences of unemployment.

• Unemployment is linked to physical and mental health problems, higher crime rates, and social unrest.

Types of Unemployment

Frictional Unemployment

• Results from workers leaving one job and spending time looking for a new one.

• Can lead to skill erosion over time, making it harder to find work.

Cyclical Unemployment

• Occurs as a result of a fall in aggregate demand due to an economic recession.

• Firms cut production costs, leading to a rise in unemployment.

Structural Unemployment

• Occurs due to long-term changes in the structure of an economy.

• Workers end up having the wrong skills in the wrong place, making them unfit for employment.

Technological Unemployment

• Machinery replaces human labor, leading to job losses.

• Provides companies with cheap labor and reduces labor costs.

Sectoral Unemployment

• Unemployment caused as a sector or industry declines, leaving its workers unemployed.

• Companies can hire workers at a lower wage, reducing labor costs.

Seasonal Unemployment

• Occurs when the demand for a good or service is seasonal.

• Examples include ski gear and instructors.

• Provides temporary employment during specific seasons.

Voluntary Unemployment

• Individuals choose not to work, often due to personal reasons or preferences.