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's 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
[edit] 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 applies for fresh graduates looking for employment as well. This is a productive part of the economy, increasing both the worker's long term welfare and economic efficiency, and is also a type of voluntary unemployment. It is a result of imperfect information in the labor market, because if job seekers knew that they would be employed for a particular job vacancy, almost no time would be lost in getting a new job, eliminating this form of unemployment.
Frictional unemployment is always present in an economy, so the level of involuntary unemployment is properly the unemployment rate minus the rate of frictional unemployment, which means that increases or deceases in unemployment are normally under-represented in the simple statistics.[3]
[edit] Classical unemployment
Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level. Libertarian economists like F.A. Hayek argued that unemployment increases the more the government intervenes into the economy to try to improve the conditions of those with jobs. For example, minimum wages raise the cost of labourers with few skills to above the market equilibrium, resulting in people who wish to work at the going rate but cannot as wage enforced is greater than their value as workers becoming unemployed.[4][5] They believed that laws restricting layoffs made businesses less likely to hire in the first place, as hiring becomes more risky, leaving many young people unemployed and unable to find work.[5] Some, such as Murray Rothbard,[6] suggest that even social taboos can prevent wages from falling to the market clearing level.
[edit] Cyclical or Keynesian unemployment
Cyclical or Keynesian unemployment, also known as demand deficient unemployment, occurs when there is not enough aggregate demand in the economy. This is caused by a business cycle recession, and wages not falling to meet the equilibrium level.
[edit] 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. For example, in the late 1990s there was a tech bubble, creating demand for computer specialists. In 2000-2001 this bubble collapsed. A housing bubble soon formed, creating demand for real estate workers, and many computer workers had to retrain to find employment.
André Gorz believes that structural unemployment could be permanent in modern society, as the microchip revolution and the explosion in computer science and robotising of work even in less developed industrialized countries increase productivity.
Nobel Prize winning economist, Paul Krugman has attacked this view, arguing that "One problem capitalism does not suffer from ... is being too productive for its own good."[7].
“
Productivity gains in steel may reduce the number of jobs in steel, but they create jobs elsewhere (if only by lowering the price of steel, and therefore releasing money to be spent on other things); advanced countries may lose garment industry jobs to developing-country exports, but they gain other jobs producing the goods that those countries buy with their new export income. To observe that productivity growth in a particular industry reduces employment in that same industry tells us nothing about whether productivity growth in the economy as a whole reduces employment in the economy as a whole.[8]
”
[edit] Seasonal unemployment
Seasonal unemployment results from the fluctuations in demands for labour in certain industries because of the seasonal nature of production.In such industries there is a seasonal pattern in the demand for labor. During the period when the industry is at its peak there is a high degree of seasonal employment, but during the off-peak period there is a high seasonal unemployment.
Seasonal unemployment occurs when an occupation is not in demand at certain seasons.
[edit] Okun's Law
Okun's law states that for every 3% GDP falls relative to potential GDP, unemployment rises 1% (of the total workforce). When the economy operates at productive capacity, it will experience the natural rate of unemployment. [9]
U= ^u-h[100(y/yn)-100]
[edit] Involuntary unemployment
Say's law declares that, in time, "markets clear" in an unfettered, unregulated laissez-faire economy: every seller will find a buyer at some strike price, and every buyer will find a seller at some strike price. Sellers and buyers may refuse the strike price but this personal decision is voluntary, which causes the selling or buying to leave the economic model. This theory relies heavily on the absence of government regulation and assumes a developed economy without sabotage where labor strikes, as opposed to strike (mutually agreed upon) prices, are illegal.[citation needed]
Keynes tried to demonstrate in The General Theory of Employment, Interest and Money that Say's law did not work in the real world of the 1930s Depression because of oversaving and private investor timidity, and that in consequence people could be thrown out of work involuntarily without being able to find acceptable new jobs.
This conflict of the neoclassical and Keynesian theories has had strong influence on government policy. The tendency for government is to curtail and eliminate unemployment through increases in benefits and government jobs, and to encourage the job-seeker to both consider new careers and relocation to another city.
Involuntary unemployment does not exist in agrarian societies nor is it formally recognized to exist in underdeveloped but urban societies such as the mega-cities of Africa and of India/Pakistan, given that, in such societies, the suddenly unemployed person must meet his survival needs, by getting a new job quickly at any strike price, entrepreneurship, or joining the invisible economy of the hustler.[10]
From the narrative standpoint, involuntary unemployment is discussed in the stories by Ehrenreich, the narrative sociology of Bourdieu, and novels of social suffering such as John Steinbeck's Of Mice and Men.
[edit] 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 applies for fresh graduates looking for employment as well. This is a productive part of the economy, increasing both the worker's long term welfare and economic efficiency, and is also a type of voluntary unemployment. It is a result of imperfect information in the labor market, because if job seekers knew that they would be employed for a particular job vacancy, almost no time would be lost in getting a new job, eliminating this form of unemployment.
Frictional unemployment is always present in an economy, so the level of involuntary unemployment is properly the unemployment rate minus the rate of frictional unemployment, which means that increases or deceases in unemployment are normally under-represented in the simple statistics.[3]
[edit] Classical unemployment
Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level. Libertarian economists like F.A. Hayek argued that unemployment increases the more the government intervenes into the economy to try to improve the conditions of those with jobs. For example, minimum wages raise the cost of labourers with few skills to above the market equilibrium, resulting in people who wish to work at the going rate but cannot as wage enforced is greater than their value as workers becoming unemployed.[4][5] They believed that laws restricting layoffs made businesses less likely to hire in the first place, as hiring becomes more risky, leaving many young people unemployed and unable to find work.[5] Some, such as Murray Rothbard,[6] suggest that even social taboos can prevent wages from falling to the market clearing level.
[edit] Cyclical or Keynesian unemployment
Cyclical or Keynesian unemployment, also known as demand deficient unemployment, occurs when there is not enough aggregate demand in the economy. This is caused by a business cycle recession, and wages not falling to meet the equilibrium level.
[edit] 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. For example, in the late 1990s there was a tech bubble, creating demand for computer specialists. In 2000-2001 this bubble collapsed. A housing bubble soon formed, creating demand for real estate workers, and many computer workers had to retrain to find employment.
André Gorz believes that structural unemployment could be permanent in modern society, as the microchip revolution and the explosion in computer science and robotising of work even in less developed industrialized countries increase productivity.
Nobel Prize winning economist, Paul Krugman has attacked this view, arguing that "One problem capitalism does not suffer from ... is being too productive for its own good."[7].
“
Productivity gains in steel may reduce the number of jobs in steel, but they create jobs elsewhere (if only by lowering the price of steel, and therefore releasing money to be spent on other things); advanced countries may lose garment industry jobs to developing-country exports, but they gain other jobs producing the goods that those countries buy with their new export income. To observe that productivity growth in a particular industry reduces employment in that same industry tells us nothing about whether productivity growth in the economy as a whole reduces employment in the economy as a whole.[8]
”
[edit] Seasonal unemployment
Seasonal unemployment results from the fluctuations in demands for labour in certain industries because of the seasonal nature of production.In such industries there is a seasonal pattern in the demand for labor. During the period when the industry is at its peak there is a high degree of seasonal employment, but during the off-peak period there is a high seasonal unemployment.
Seasonal unemployment occurs when an occupation is not in demand at certain seasons.
[edit] Okun's Law
Okun's law states that for every 3% GDP falls relative to potential GDP, unemployment rises 1% (of the total workforce). When the economy operates at productive capacity, it will experience the natural rate of unemployment. [9]
U= ^u-h[100(y/yn)-100]
[edit] Involuntary unemployment
Say's law declares that, in time, "markets clear" in an unfettered, unregulated laissez-faire economy: every seller will find a buyer at some strike price, and every buyer will find a seller at some strike price. Sellers and buyers may refuse the strike price but this personal decision is voluntary, which causes the selling or buying to leave the economic model. This theory relies heavily on the absence of government regulation and assumes a developed economy without sabotage where labor strikes, as opposed to strike (mutually agreed upon) prices, are illegal.[citation needed]
Keynes tried to demonstrate in The General Theory of Employment, Interest and Money that Say's law did not work in the real world of the 1930s Depression because of oversaving and private investor timidity, and that in consequence people could be thrown out of work involuntarily without being able to find acceptable new jobs.
This conflict of the neoclassical and Keynesian theories has had strong influence on government policy. The tendency for government is to curtail and eliminate unemployment through increases in benefits and government jobs, and to encourage the job-seeker to both consider new careers and relocation to another city.
Involuntary unemployment does not exist in agrarian societies nor is it formally recognized to exist in underdeveloped but urban societies such as the mega-cities of Africa and of India/Pakistan, given that, in such societies, the suddenly unemployed person must meet his survival needs, by getting a new job quickly at any strike price, entrepreneurship, or joining the invisible economy of the hustler.[10]
From the narrative standpoint, involuntary unemployment is discussed in the stories by Ehrenreich, the narrative sociology of Bourdieu, and novels of social suffering such as John Steinbeck's Of Mice and Men.
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