Unemployment, also known as unemployment, is the situation in which people find themselves who, having age, ability and desire to work, do not occupy and cannot get a job.
The following will try to make a short introduction to the extensive topic of unemployment, a delicate issue that affects the lives of millions of people around the world every day.
What is unemployment
Unemployment is the involuntary leisure of a person who wants to find work. A person is unemployed when they meet four conditions: (1) they are of working age, (2) they do not have a job, (3) they are looking for work, and (4) they are available for work.
In this vein, unemployment is an involuntary phenomenon, both on the side of individuals and on the side of companies, that is: people who want to be employed are not hired and companies, due to unemployment, do not receive the income they would be. possible if there was full employment or if unemployment was lower.
It is also defined as the inability of an economy to absorb the entire workforce (all the people who want to work).
What are your causes
Mankiw and Rabasco (p.437) cite the following four factors as causing unemployment:
- The first cause of unemployment is the time it takes workers to find the job that best suits their tastes and qualifications. Unemployment insurance is a public program that, while protecting workers' income, increases the amount of frictional unemployment. The second reason why an economy always has some unemployment is the legislation on the minimum wage. This legislation, by forcing unskilled and inexperienced workers to pay higher than equilibrium wages, raises the quantity of labor supplied and reduces the quantity demanded. The resulting overwork represents unemployment. The third cause of unemployment is the market power of unions. When these achieve higher wages than equilibrium in the unionized sectors, they create excess work.The fourth cause of unemployment is suggested by the theory of efficiency wages. According to this theory, it is profitable for companies to pay higher wages than equilibrium. High wages can improve the health of workers, reduce their turnover, improve their quality and increase their effort.
What types are there
Four basic types of unemployment are mentioned in labor economic theory, namely:
- Classic unemployment. It is the temporary unemployment caused by an excessive level of real wages in relation to the marginal productivity of workers, which deters their hiring. Keynesian unemployment. Unemployment is the result of insufficient effective demand for goods and services that renders the additional production that unemployed workers could contribute idle (due to unsaleable), which also clearly deters their hiring. Frictional unemployment. Normal unemployment in any economy, arising from friction in the process of making contact between workers and companies (workers in transit between two jobs, looking for a better job, or workers joining the workforce in search of their first job). Structural unemployment. Unemployment caused by the differences between the qualifications or location of the job offer and the qualifications or location required by the employers of the same, that is, the companies, to fill the vacant positions.
In addition to the previous basic types, there are:
- Seasonal unemployment. This is the case of activities in which during one period of the year the labor demand increases and in another it falls substantially, for example tourism, during the summer more employees are required in hotels, restaurants and entertainment centers, while in winter the number of employees drops dramatically. Cyclical unemployment. It is caused by the stagnation and reduction of the production, consequence of the modification of the demand, generally it appears in recessive stages of the economic cycle. Disguised unemployment. A worker is in disguised unemployment if the income he earns from his new job is less than the income he received from his previous job. It is of two kinds: (a) when the number of hours worked is reduced and (b) when the real wage rate, or the unit price of labor, is relatively lower. Hidden unemployment. It is made up of unemployed people who have become discouraged in their job search and who are classified in the measurements as inactive.
As measured
The unemployment rate measures the proportion of people who look for work without finding it with respect to the total number of people who make up the labor force. Therefore, the unemployment rate can be defined as the ratio between the number of unemployed people and the labor force.
Unemployment rate = Unemployed Persons / Labor Force
Variations in the unemployment rate are obtained through a procedure known as random sampling of the population that is carried out in order to divide it into groups according to their employment situation.
Unemployment rates vary considerably due to changes in the volume of movement of the labor market, the result of technological change, which leads to the change of employment from one company to another, from one sector to another and from one region to another; also according to age, gender and race. The global unemployment rate is one of the most frequently used indicators to measure global economic well-being, but given the dispersion of unemployment, it should be considered to be an imperfect indicator of such well-being.
The unemployment rate is not the only indicator of the labor market, it is also possible that other indicators are used such as: the employment rate (defined as the workers employed as a percentage of the total population of working age) and the vacancy rate (the number of job vacancies as a proportion of the workforce). Labor market flows are also noted, including the hiring rate (the proportion of unemployed who were hired in a period), the separation rate (the proportion of workers who lose or change jobs in a period) and the rates of job creation or destruction (the proportion of all jobs that were created or lost in a given period).
The natural rate of unemployment. It is the sum of frictional and structural unemployment. It represents the population in search of work whose unemployment is neither seasonal nor cyclical, that is, the reason for not being employed is not due to the seasonality of their occupation, trade or profession, or to an economic crisis.
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The following video explains, in a simple way, how the unemployment rate is calculated.
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Costs to society and the economy
The whole society agrees that unemployment is a serious problem that causes losses of all kinds, according to Muñoz (p.100) the main costs of unemployment are:
- Loss of production and income. Losing a job causes an immediate loss of income and production. These losses are devastating for the people who bear them and make unemployment terrifying for everyone. Unemployment insurance offers some protection, but it does not provide the same standard of living that could be achieved if you had a job. Loss of human capital. Long-term unemployment can permanently damage a person's job prospects. For example, a manager loses his job when his employer downsizes the company. If you need an income, you can become a taxi driver. After a year in this job, he discovers that he cannot compete with recent MBA graduates. Eventually you may be rehired as a manager, but in a small company with a low salary. It has lost part of its human capital.
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Other concepts related to unemployment
- Active population: it is the total of employed, self-employed and unemployed, that is, those who have a job plus those who are looking for it. Employed population: are those people who are employed (employees), plus those who are self-employed (self-employed). Unemployed: those people who would be willing to work if there were jobs available. Voluntary unemployment: formed by people who are not willing to work at the current wage. Involuntary unemployment: made up of people who, even though they are willing to work at the current wage, cannot find a job available. Activity rate: Activity rate = (Active population / working age population) * 100
Bibliography
- Costa Vallés, Manuel. Introduction to labor economics, Edicions Universitat Barcelona, 2005.Larraín B., Felipe y Sachs, Jeffrey D. Macroeconomics in the global economy, Pearson Educación, 2002. Mankiw, N. Gregory and Rabasco, Esther. Principles of economics, Editorial Paraninfo, 2007. Morishima, Michio and Martínez Pujana, Ana. Economic theory of modern society, Antoni Bosch Editor, 1981.
