LECTURE:3

unemployment

UNEMPLOYMENT
1. Meaning: Unemployment is defined as a state of afairs when in a country there are a large
number of able-bodied persons of working age who are willing to work but cannot find work at
the current wage levels.Thus, the unemployment rate is given by the proportion of the
unemployed persons in the total work force.
u= U
W
u- Unemployment
U- Worforce for employed people
W-Population ---- people are not in workforce
2. Types: a. Frictional unemployment b. Structural unemployment c. cyclical unemployment
d.Involuntary unemployment. e. Voluntary unemployment. f. Disguised unemployment. g.
Underemployment.
a. Frictional unemployment: Frictional unemployment is unemployment that arises as part of
the normal turnover of labor. For example, in a market economy firms and from training to
work. In the course of this dynamic movement there will always be some workers who are
between job, or just entering the labor force and looking for the first job and are classified as
unemployed.
b. Structural unemployment: It is occurs when there is a mismatch between the characteristics
and skills of the people looking for work and those desired by potential employers. Jobs may
exist in London while the available workers are in Liverpool or there may be plenty of
opportunities for computer programmers but an oversupply of individuals looking for jobs in
social work. Frictional and structural unemployment make up equilibrium unemployment.(Ref:
Economics Lipsey and Chrystal pp-568)
c.Cyclical unemployment: Demand deficient unemployment occurs whenever total demand is
insufficient to purchase all of the economy's potential output, causing a recessionary gap in
which actual output is less than potential output. Cyclical unemployment can be measured as the
number of people who would be employed if the economy were at potential GDP minus the
number of persons currently employed.
d.Involuntary unemployment: A person who is willing and able to work, and is looking for
job but does not find one, is involuntary unemployment.
e. Voluntary unemployment: The people are voluntarily unemployed. This might arise due to
the laziness, obsessin with wealth and leisure.
f. Disguised unemployment: The marginal product of the labour is zero and hence their
unemployment is hidden.
g. Underemployment: The situation where the work available is for lesser than the full
employment hours or for periods lesser than the full working days in a given period.(Ref:
MacroEconomics G.S. Gupta pp-57-59)
3.Impact of unemployment:a. Economic b. Social c. Cultural.
Attachments:

Reference:1.MacroEconomics G. S. Gupta. 2. Economics Lipsey and Chrystal.

Prepared by MBA\MRS R.CHITRA[ASSISTANT PROFESSOR\TSBA004]

25/11/09