Macroeconomics: Causes, Effects, and Measures of Unemployment

This report delves into the multifaceted issue of unemployment within the framework of macroeconomics. It begins by defining unemployment as the situation where individuals actively seeking work are unable to find it, impacting economic growth. The report then categorizes unemployment into four main types: frictional, voluntary, structural, and cyclical, each with distinct causes and characteristics. It explores the root causes of unemployment, including slower economic growth, inadequate capital investment, and labor immobility. The report further examines the detrimental effects of unemployment on economies, such as exploitation of labor, political instability, increased poverty, and social problems. Finally, the report suggests several measures to mitigate unemployment, including the adoption of labor-intensive technologies, investment in the agricultural sector, and fostering labor-intensive industries. The conclusion emphasizes the need for government policies to address unemployment through increased unemployment insurance and boosting gross domestic product to stimulate job creation.

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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

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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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increasing the gross domestic product of the country, which in return will increase the
employment rate of the economies.

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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.