Unemployment: Types, Causes, Effects and Measures

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Macroeconomics

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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

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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