Unemployment. Unemployment is the amount of people willing and able to work at the market wage but without a job.
Many types of unemployment exist:
- Keynesian (Demand-Deficient) Unemployment. AD is insufficient for all workers to be employed. Let’s say an economy is in a recession where AD and real GDP are declining. Firms produce less and require less labour so lay-off workers. Workers want to work but some are involuntarily unemployed. Keynesian unemployment can persist even in the long-run. AD must rise to reduce unemployment.
- Frictional Unemployment. Frictional unemployment occurs when workers are moving between jobs. Workers are unemployed but searching for a new job. It is a short-run phenomenon. The government must reduce benefits to incentivize the unemployed to find jobs quicker. Also, the government must disseminate job information so that the unemployed can find jobs quicker.
- Seasonal Unemployment. Seasonal unemployment occurs when workers are unemployed during the off-season. Agriculture experiences seasonal unemployment as workers are employed during harvests but unemployed during winters.
- Real Wage Unemployment. Real wage unemployment occurs when real wages are above the market-clearing level, maybe because of a minimum wage. At the quantity supplied of labour is greater than the quantity of labour demanded, there is excess labour supply, workers are willing and able to work at but are involuntarily unemployed.Structural Unemployment.
- Structural Unemployment. Structural unemployment exists when there is a mismatch between labour’s skills and the skills required by employers. There could be sectoral unemployment where an economy goes through structural change, maybe mining declines, so skilled miners become unemployed because they do not have the skills to immediately get a different job. Or there could be technological unemployment where, maybe, new technology is developed which replaces some workers who do not have the skills to immediately get other jobs.