Unemployment is the non-availability of employment to an unemployed person looking for work. It is a very good indicator to measure the economy of a country. The definition of unemployment excludes people who leave the workforce for reasons such as retirement, higher education, and disability. National and local governments provide employment opportunities to people who meet the eligibility criteria set by them. The main reason for doing this is to reduce the unemployment rate.
How to measure unemployment
The most widely used method is the unemployment rate. A low unemployment rate means a strong economy, and a high unemployment rate is a sign of a weak economy. It can be found by multiplying the number of unemployed people by 100 after dividing the number of people without jobs by the total population included in the country’s labour force. Or, Unemployment rate = (Number of unemployed / Total labour force) * 100
Category of Unemployment
Even though the definition of unemployment is clear, economists have divided it into several categories. Voluntary and involuntary are the two most main and broadest categories. Like their names, their meaning or definition is very clear. Leaving a job voluntarily is voluntary unemployment. Being fired from a job is involuntary unemployment.
Types of Unemployment
Voluntary and Involuntary unemployment can be divided into four types.
Frictional unemployment
Short-term unemployment is the least problematic from an economic point of view. It takes some time to find a job after voluntarily leaving the job. Little time gives rise to frictional unemployment. Searching for new job, recruiting new employees, and matching the right employees with the right jobs all takes time and effort.
Cyclical unemployment
Unemployment rises in times of recession and decreases in times of economic growth. Cyclical unemployment is a variation in the number of workers trapped in economic ups and downs. In times of recession, governments try to reduce cyclical unemployment to prevent negative effects on the economy.
Structural unemployment
Technological change in the structure of the economy gives rise to structural unemployment. Examples of this include the computer taking away the jobs of many workers, the replacement of horse-drawn transportation with the automobile, and the automation of manufacturing.
Institutional unemployment
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