• Unemployment refers to the situation where individuals who are capable of working and are actively seeking work are unable to find employment.
  • It is an economic condition that is usually cyclical or structural in nature.
  • It is a key issue for managing the national economy as it impacts economic growth, inflation, and public finances.

Types of Unemployment

  • Frictional Unemployment: This refers to short-term unemployment arising from the normal job search process. It is often seen as necessary for a functioning economy.
  • Seasonal Unemployment: This refers to unemployment that occurs due to fluctuations in demand at certain times of the year.
  • Structural Unemployment: This arises when there’s a mismatch between the skills workers have and the skills demanded by employers.
  • Cyclical Unemployment: This is caused by a downturn in the economy. It rises during a recession and falls during an economic boom.

Measures of Unemployment

  • The Unemployment Rate is the most widely used measure. It’s the proportion of the labour force that is jobless.
  • The Claimant Count measures the number of people claiming unemployment-related benefits.

Causes and Consequences of Unemployment

  • Causes include economic downturns, technological changes, structural shifts in industries, and policies that affect labour demand and supply.
  • Consequences of high unemployment include potential loss of GDP, social problems such as crime and health issues, and increased government spending on benefits.

Policies to Reduce Unemployment

  • Demand-side Policies: These include fiscal and monetary policy measures aimed at stimulating aggregate demand to create more jobs.
  • Supply-side Policies: These aim to improve the functioning and flexibility of labour markets by addressing structural issues causing unemployment.

Impact of Unemployment on the Economy

  • High unemployment results in a loss of output to the economy as it’s not fully utilising its resources.
  • It can lead to increased government expenditure on unemployment benefits and reduced income from taxes.
  • It can result in a decline in skills and human capital as unemployed workers lose specific skills or experience decreased morale over time.

Limitations of Unemployment Measures

  • It doesn’t account for underemployment where individuals have part-time jobs but wish to work full-time.
  • It doesn’t capture discouraged workers who have given up job-seeking due to lack of success.
  • It doesn’t include those involved in the informal economy or illegal activity.
  • It may also overlook quality of employment, focusing only on whether individuals have a job or not.