This article discusses the types of unemployment, including frictional, voluntary, structural, and cyclical, as well as the causes and effects of unemployment on economies. It also provides measures that can be taken to reduce unemployment rates.
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1 Macroeconomics
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2 Introduction According to Shimer (2012), unemployment is considered as the situation where jobless individuals actively look for jobs but is unable to get inside a labor force with adequate wage. If an individual is not actively participating within the labor force for seeking employment then that particular individual is not considered as unemployed. In the recent times, unemployment is one of the major problems faced by the world economies. Unemployment reduces the gross domestic product of the economies resulting in recessions and higher inflation rates. The following paper will further discuss about unemployment its cause, effects and measures to reduce the unemployment rate from the world economy. Types of unemployment As opined by Hagedorn & Manovskii (2008), there are four major types of unemployment operating within the world economy they include frictional unemployment, voluntary unemployment, structural unemployment and cyclical unemployment. Frictional unemployment takes place when the workers switch between jobs. Frictional unemployment is the most common form of unemployment that occurs in the developing economies. Individuals tend to switch jobs more frequently in the developing economies because of lower job satisfaction, which results into unemployment for short span of time termed as frictional unemployment. Voluntary unemployment takes place when the workers are not ready to take jobs at the existing wage rate. A great deal of population in the economies is voluntarily unemployed because they feel that the wage rate do not justify their ability. Voluntary unemployment is also one of the prevalent form of unemployment existing in the economy. For example when highly qualified scholars are offered with low salary jobs they tend to remain
3 unemployed instead of moving into the labor force. Structural unemployment occurs when the individuals are nor skilled enough for the job in hand , inefficiencies in the labor market, geographical immobility and technical changes. For instance, if there are jobs in London but individuals residing outside London cannot afford to take up the job because of geographical immobility. It is not possible for majority of the labor force to leave their family and travel abroad in order to get a job. Therefore, geographical barriers are one of the significant aspects that lead to unemployment. Cyclical unemployment depends on the business cycle, that is if the economy is producing maximum output then the cyclical unemployment tends to be low as industries are hiring more worker to produce large number of goods and services. On the other hand, if the output is low then the unemployment rate is high because workers are set out of jobs as there is no use of more workers to produce small amount of goods and services. Therefore, the booms and busts of the business cycle are significant for managing unemployment within the economy (Wagner 2014). Cause of unemployment There are several causes of unemployment that adds on to the high unemployment rate. The most important causes of unemployment are discussed hereafter. Slower economic growth in the developing countries often fail to generate employment for the labor force as there is low productivity within the country. Moreover, slow growth of industries and lower savings and investments also increases the unemployment rate. Inadequate capital investment will not be able to provide adequate wages to the hired labors, resulting in low intake of labors and unemployment. Immobility of labors is one of the principle reason that causes unemployment. Mostly jobs are available in the developed part of the world but the people residing in the
4 developing countries cannot make access to the jobs and remain unemployed (Iqbal & Khaleek, 2013). Effects of unemployment in economies The major effects of unemployment in the economies include exploitation of the labor force, political instability, increased poverty and social problems. When an economy is facing unemployment, the skilled labors are exploited as they are made to work at lower wage rate. Moreover, the unemployed workers often get involved in destructive activities and blame their government for such unemployment resulting in political instability. With increased rate of unemployment social problems arises and human resources gets devalued resulting in brain drain from certain developing economy. The skilled workers starts migrating to the developed part of the world. Measures of unemployment The methods through which the economies can control the unemployment rate includes, using more labor-intensive technology that would fetch more jobs in the economy. Accelerating the invested funds towards agricultural sector as the primary sector is more labor intensive in nature. Moreover, industries can be more labor intensive in order to absorb more labors from the markets. Conclusion It can be observed from the above paper that unemployment is a serious problem to be dealt with. There are majorly four main types of unemployment and the government should initiate policies to reduce unemployment rate by increasing the unemployment insurance and
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5 increasing the gross domestic product of the country, which in return will increase the employment rate of the economies.
6 References Shimer, R. (2012). Reassessing the ins and outs of unemployment.Review of Economic Dynamics,15(2), 127-148. Hagedorn, M., & Manovskii, I. (2008). The cyclical behavior of equilibrium unemployment and vacancies revisited.American Economic Review,98(4), 1692-1706. Wagner, B. (2014). Types of Unemployment.Montana Department Of Labour And Industry, Research And Analysis Bureau,89(3), 45-67. Iqbal, M. M. A., & Khaleek, S. Q. (2013). Causes of unemployment among the educated youth in pakistan.The International Journal of Social Sciences,11(1), 170-176.