AskDefine | Define unemployment

Dictionary Definition

unemployment n : the state of being unemployed or not having a job; "unemployment is a serious social evil"; "the rate of unemployment is an indicator of the health of an economy" [ant: employment]

User Contributed Dictionary

English

Noun

  1. The state of having no job; joblessness.
    Unemployment made Jack depressed.
  2. The phenomenon of joblessness in an economy.
    Unemployment has been considered a cause of crime.
  3. The level of joblessness in an economy, often measured as a percentage of the workforce.
    Unemployment was reported at 5.2% in May, up from 4.9% in April.
  4. A type of joblessness due to a particular economic mechanism.
    All unemployments, seasonal, frictional, cyclical, classical, whatever, mean that you're out of work.
  5. An instance or period of joblessness.
    Until them his life had consisted of low-paying jobs, numberous unemployments, and drug use.

Synonyms

Antonyms

Translations

joblessness

Extensive Definition

Unemployment is the state in which a person is without work, available to work, and is currently seeking work. The unemployment rate is used in economic studies and economic indexes such as the United States' Conference Board's Index of Leading Indicators. The rate is determined as the percentage of those in the labor force without jobs.

Types

According to economist Edmond Malinvaud, the type of unemployment that occurs depends on the situation at the goods market, rather than that they belong to opposing economic theories. If the market for goods is a buyers' market (i.e.: sales are restricted by demand), Keynesian unemployment may ensue while a limiting production capacity is more consistent with classical unemployment.
A common typology of unemployment is the following:

Frictional unemployment

Frictional unemployment occurs when a worker moves from one job to another. While he searches for a job he is experiencing frictional unemployment. This is a productive part of the economy, increasing both the worker's long term welfare and economic efficiency

Classical unemployment

Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level. This is often ascribed to government intervention, as with the minimum wage, or labour unions. Some, such as Murray Rothbard, suggest that even social taboos can prevent wages from falling to the market clearing level.

Structural unemployment

Structural unemployment is caused by a mismatch between jobs offered by employers and potential workers. This may pertain to geographical location, skills, and many other factors.
If such a mismatch exists, frictional unemployment is likely to be more significant as well.
Seasonal unemployment occurs when an occupation is not in demand at certain seasons.

Keynesian unemployment

Cyclical or Keynesian unemployment, also known as demand deficient unemployment, occurs when there is not enough aggregate demand for the labor. This is caused by a business cycle recession, and wages not falling to meet the equilibrium rate.

Causes

There is considerable debate among economists as to the causes of unemployment. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and service in the economy (cyclical unemployment). Others point to structural problems, inefficiencies, inherent in labour markets (structural unemployment). Classical or neoclassical economics tends to reject these explanations, and focuses more on rigidities imposed on the labor market from the outside, such as minimum wage laws, taxes, and other regulations that may discourage the hiring of workers (classical unemployment). Yet others see unemployment as largely due to voluntary choices by the unemployed (frictional unemployment).
Though there have been several definitions of voluntary and involuntary unemployment in the economics literature, a simple distinction is often applied. Voluntary unemployment is attributed to the individual unemployed workers (and their decisions), whereas involuntary unemployment exists because of the socio-economic environment (including the market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment is voluntary, since it reflects individual search behavior. On the other hand, cyclical unemployment, structural unemployment, and classical unemployment, are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by the unemployed in the past, while classical unemployment may result from the legislative and economic choices made by labor unions and/or political parties. So in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers even when wages are allowed to adjust, so that even if all vacancies were to be filled, there would be unemployed workers. This is the case of cyclical unemployment, for which macroeconomic forces lead to microeconomic unemployment. See also: unemployment types
Some argue one of the main causes of unemployment in a free market economy is that the law of supply and demand is not really applied to the price to be paid for employing people. In situations of falling demand for products and services the wages of all employees, from president to errand boy, are not automatically reduced by the required percentage to make the business viable. Others say that it is the market that determines the wages based on the desirability of the job. The more people qualified and interested in the job, the lower the wages for that job become. Based on this view, the profitability of the company is not a factor in determining whether or not the work is profitable to the employee. People are laid off, because pay reductions would reduce the number of people willing to work a job. With fewer people interested in a particular job, the employees bargaining power would actually rise to stabilize the situation, but their employer would be unable to fulfill their wage expectations. In the classical framework, such unemployment is due to the existing legal framework, along with interferences with the market by non-market institutions such as labor unions and government. Others say many of the problems with market adjustment arise from the market itself (Keynes), or from the nature of capitalism (Marx).
In developing countries unemployment is often caused by burdensome government regulation. The World Bank's Doing Business project shows how excessive labor regulation increases unemployment among women and youths in Africa, the Middle East and Latin America.
Open unemployment is generally associated with capitalist economies. In this view, unemployment is not an aberration of capitalism, indicating any sort of systemic malfunction. Rather, unemployment is a necessary structural feature of capitalism, intended to discipline the workforce. If unemployment is too low, workers make wage demands that either cuts into profits to an extent that jeopardize future investment, or are passed on to consumers, thus generating inflationary instability. David Schweickart suggests, "Capitalism cannot be a full-employment economy, except in the very short term. For unemployment is the "invisible hand" -- carrying a stick -- that keeps the workforce in line.".
Classical economists dispute this, arguing that when there is too high a supply of labour, providing unions and Government have no prevented wage changes, the wage rate should fall, returning the economy to it's long run efficient position at full employment.
Unemployment increases the more the government intervenes into the economy to try to improve the rights of those with jobs. For example, minimum wages raise the cost of labour to above the market equilibrium, resulting in people who wish to work at the going rate but cannot as the wages are higher than their worth to business; unemployment. Laws restricting layoffs make businesses less likely to hire in the first place leaving many young people unemployed and unable to find work.
The results of both actions lead to less productivity and are claimed to incur a higher cost on society as a whole. The results lead to not just higher unemployment but may increase poverty. This is why the less market oriented countries of Europe often sustain substantially high unemployment rates in comparison to the United States; that is, government induced employment through policies designed to protect the worker. The welfare state then responds with various benefits that are paid for by the middle and upper class which reduces their ability to consume and reduces the incentive to work hard and innovate for all sections of society, as the poor have income without working and the rich see their reward for work reduced. Economists like Ludwig Von Mises, Milton Friedman, Friedrich Von Hayek not only believe that the welfare of society decreases with this kind of intervention but that these economic policies are not sustainable.

Okun's Law

Okun's law states that for every 2% GDP falls relative to potential GDP, unemployment rises 1%. When the economy operates at productive capacity, it will experience the Natural rate of unemployment.

Solutions

At an individual level, the solution to unemployment may be as simple as getting a job, or getting more training.
Societies try a number of different measures to get as many people as possible into work. However, attempts to reduce the level of unemployment beyond the Natural rate of unemployment generally fail, resulting only in less output and more inflation.

Philips Curve

It used to be largely believed that unemployment could be solved using the Philips curve. This involves increasing inflation to reduce unemployment by fooling workers into accepting jobs at a lower rate than they would otherwise have done, due to the declining value of money. However, since the work of Milton Friedman, it is widely accepted that the Philips curve is vertical in the long run: you cannot achieve a lowering of the unemployment rate in the long run, and attempts to do so will only cause inflation.

Demand side

Normal markets reach equilbrium, where supply equals demand; everyone who wants to sell at the market price can. Those who do not want to sell at this price do not; in the labour market this is classical unemployment. Increases in the demand for labour will move the economy along the supply curve, increasing wages and employment. The demand for labour in an economy is derived from the demand for goods and services. As such, if the demand for goods and services in the economy increases, the demand for labour will increase, increasing employment and wages.
Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labour and decreasing unemployment.

Supply side

However, the labour market is not efficient: it doesn't clear. Minimum wages and union activity keep wages from falling, which means too many people want to sell their labour at the going price but cannot. Supply-side policies can solve this by making the labour market more flexible. These include removing the minimum wage and reducing the power of unions, which act as a labour cartel. Other supply side policies include education to make workers more attractive to employers.
Supply side reforms also increase long-term growth. This increased supply of goods and services requires more workers, increasing employment. Supply side policies, which include cutting taxes on businesses and reducing regulation, 'create jobs and reduce unemployment' according to the 2005 Budget report.

Tax-related

One structural solution to unemployment proposes a graduated retail tax, or "jobs levy", to firms where labor is more expensive than capital. This method will shift tax burden to capital intensive firms and away from labor intensive firms. In theory this will make firms shift operations to a "golden mean" between labor intensive and capital intensive production. The excess tax revenue from the jobs levy would finance labor intensive public projects. However, by raising the value of labour artificially above capital, this would disencourage capital investment, the source of economic growth. With less growth, long-run employment would fall

Costs of unemployment

Individual

Unemployed individuals are unable to earn money to meet financial obligations. Failure to pay mortgage payments or to pay rent may lead to homelessness through foreclosure or eviction. Unemployment increases susceptibility to malnutrition, illness, mental stress, and loss of self-esteem, leading to depression.
Dr. M. Harvey Brenner conducted a study in 1979 on the "Influence of the Social Environment on Psychology." Brenner found that for every 10% increase in the number of unemployed there is a 1.2% in total mortality, a 1.7% increase in cardiovascular disease, 1.3% more cirrhosis cases, 1.7% more suicides, 0.4% more arrests, and 0.8% more assaults reported to the police. A more recent study by Christopher Ruhm on the effect of recessions on health found that several measures of health actually improve during recessions. As for the impact of an economic downturn on crime, during the Great Depression, when unemployment rates exceeded 20% in many countries, the crime rate did not decrease. Because unemployment insurance in the U.S. typically does not replace 50% of the income one received on the job (and one cannot receive it forever), the unemployed often end up tapping welfare programs such as Food Stamps or accumulating debt. Higher government transfer payments in the form of welfare and food stamps decrease spending on productive economic goods, decreasing GDP.
Some hold that many of the low-income jobs are not really a better option than unemployment with a welfare state (with its unemployment insurance benefits). But since it is difficult or impossible to get unemployment insurance benefits without having worked in the past, these jobs and unemployment are more complementary than they are substitutes. (These jobs are often held short-term, either by students or by those trying to gain experience; turnover in most low-paying jobs is high, in excess of 30%/year.) Unemployment insurance keeps an available supply of workers for the low-paying jobs, while the employers' choice of management techniques (low wages and benefits, few chances for advancement) is made with the existence of unemployment insurance in mind. This combination promotes the existence of one kind of unemployment, frictional unemployment.
Another cost for the unemployed is that the combination of unemployment, lack of financial resources, and social responsibilities may push unemployed workers to take jobs that do not fit their skills or allow them to use their talents. Unemployment can cause underemployment.
The fear of job loss can spur psychological anxiety.

Society

An economy with high unemployment is not using all of the resources, i.e. labour, available to it. Since it is operating below its production possibility frontier, it could have higher output if all the workforce were usefully employed. However, there is a tradeoff between economic efficiency and unemployment: if the frictionally unemployed accepted the first job they were offered, they would be likely to be operating at below their skill level, reducing the economy's efficiency.
It is estimated that, during the Great Depression, unemployment due to sticky wages cost the US economy about $4,000 billion. This is many times larger than losses due to monopolies, cartels and tariffs.
During a long period of unemployment, workers can lose their skills, causing a loss of human capital. Being unemployed can also reduce the life expectancy of workers by about 7 years
High unemployment can encourage xenophobia and protectionism as workers fear that foreigners are stealing their jobs. Efforts to preserve existing jobs of domestic and native workers include legal barriers against "outsiders" who want jobs, obstacles to immigration, and/or tariffs and similar trade barriers against foreign competitors.
Finally, a rising unemployment rate concentrates the oligopsony power of employers by increasing competition amongst workers for scarce employment opportunities..

Historical unemployment

This section is extremely suspect and may represent a minorty view
Preliterate communities treat their members as parts of an extended family and thus do not allow unemployment. In precapitalist societies such as European feudalism, the serfs were never "unemployed" because they had direct access to the land, and the needed tools, and could thus work to produce crops. Just as on the American frontier during the nineteenth century, there were day laborers and subsistence farmers on poor land, whose position in society was somewhat analogous to the unemployed of today. But they were not truly unemployed, since they could find work and support themselves on the land.
Under both ancient and modern systems of slave-labor, slave-owners never let their property be unemployed for long. (If anything, they would sell the unneeded laborer.) Planned economies such as the old Soviet Union or today's Cuba typically provide occupation for everyone, using substantial overstaffing if necessary. (This is called "hidden unemployment," which is sometimes seen as a kind of underemployment, definition 3.) Workers' cooperatives—such as those producing plywood in the U.S. Pacific Northwest—do not let their members become unemployed unless the co-op itself goes bankrupt. Artificially increasing employment in this way however means employing workers beyond their worth: the workers are making a loss, and are from society's point of view not usefully employed.

Measurement

Though many people care about the number of unemployed, economists typically focus on the unemployment rate. This corrects for the normal increase in the number of people employed due to increases in population and increases in the labor force relative to the population. The unemployment rate is expressed as a percentage, and is calculated as follows: Unemployment\ Rate=\frac*100%
As defined by the International Labour Organization, "unemployed workers" are those who are currently not working but are willing and able to work for pay, currently available to work, and have actively searched for work.
Since not all unemployment may be "open" and counted by government agencies, official statistics on unemployment may not be accurate.
The ILO describes 4 different methods to calculate the unemployment rate:
  • Labour Force Sample Surveys are the most preferred method of unemployment rate calculation since they give the most comprehensive results and enables calculation of unemployment by different group categories such as race and gender. This method is the most internationally comparable.
  • Official Estimates are determined by a combination of information from one or more of the other three methods. The use of this method has been declining in favor of Labour Surveys.
  • Social Insurance Statistics such as unemployment benefits, are computed base on the number of persons insured representing the total labour force and the number of persons who are insured that are collecting benefits. This method has been heavily criticized due to the expiration of benefits before the person finds work.
  • Employment Office Statistics are the least effective being that they only include a monthly tally of unemployed persons who enter employment offices. This method also includes unemployed who are not unemployed per the ILO definition.

European Union (Eurostat)

Eurostat, the statistical office of the European Union, defines unemployed as those persons age 15 to 74 who are not working, have looked for work in the last four weeks, and ready to start work within two weeks, which conform to ILO standards. Both the actual count and rate of employment are reported. Statistical data is available by member state, EU12, EU15, EU25, EU27, EA11, and EA13. Eurostat also includes a long-term unemployment rate. This is defined as part of the unemployed who have been unemployed for an excess of 1 year.
Three methods of data collection are used in the European Union. The European Union Labour Force Survey (EU-LFS) collects data on all member states each quarter. For monthly calculations, national surveys or national registers from employment offices are used in conjunction with quarterly EU-LFS data. Monthly unemployment rates are interpolated from monthly data from member states to provide "harmonized data."
At this time Germany's unemployment data is collected separately from the (EU-LFS).

United States Bureau of Labor Statistics

There was an official measure of 7.6 million unemployed in the U.S. as of January 2008, a rate of 4.9%.

References

External links

unemployment in Afrikaans: Werkloosheid
unemployment in Arabic: بطالة
unemployment in Bosnian: Nezaposlenost
unemployment in Bulgarian: Безработица
unemployment in Catalan: Atur
unemployment in Czech: Nezaměstnanost
unemployment in Danish: Arbejdsløshed
unemployment in German: Arbeitslosigkeit
unemployment in Estonian: Tööpuudus
unemployment in Modern Greek (1453-): Ανεργία
unemployment in Spanish: Desempleo
unemployment in Esperanto: Senlaboreco
unemployment in Basque: Langabezia
unemployment in Persian: بی‌کاری
unemployment in French: Chômage
unemployment in Galician: Desemprego
unemployment in Korean: 실업
unemployment in Croatian: Nezaposlenost
unemployment in Indonesian: Pengangguran
unemployment in Italian: Disoccupazione
unemployment in Hebrew: אבטלה
unemployment in Latvian: Bezdarbs
unemployment in Lithuanian: Bedarbystė
unemployment in Hungarian: Munkanélküliség
unemployment in Mongolian: Ажилгүйдэл
unemployment in Dutch: Werkloosheid
unemployment in Japanese: 失業
unemployment in Norwegian: Arbeidsledighet
unemployment in Norwegian Nynorsk: Arbeidsløyse
unemployment in Occitan (post 1500): Caumatge
unemployment in Polish: Bezrobocie
unemployment in Portuguese: Desemprego
unemployment in Romanian: Şomaj
unemployment in Russian: Безработица
unemployment in Albanian: Papunësia
unemployment in Simple English: Unemployment
unemployment in Slovak: Nezamestnanosť
unemployment in Slovenian: Brezposelnost
unemployment in Serbian: Незапосленост
unemployment in Serbo-Croatian: Nezaposlenost
unemployment in Finnish: Työttömyys
unemployment in Swedish: Arbetslöshet
unemployment in Vietnamese: Thất nghiệp
unemployment in Turkish: İşsizlik
unemployment in Ukrainian: Безробіття
unemployment in Walloon: Tchômaedje
unemployment in Yiddish: ארבעטסלאזיקײט
unemployment in Chinese: 失業
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