December 4, 2022

Unemployment occurs when people are without work and are actively seeking work.

Unemployment Rate (U.R.) is a measure of the prevalence of unemployment.

U.R. = (No. of unemployed individuals/ Total Labor force) *100

S#Name / Type of UnemploymentDefinition
1Classical (Real wage)Real wages for a job are set above market clearing level causing the number of job seekers to exceed the number of vacancies.
2Cyclical (Deficient demand/ Keynesian)There is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.
3Structural (mismatch)
Occurs when a labor market is unable to provide jobs for everyone who wants one as there is a mismatch between the skills of the employed workers and the skills needed for the available jobs.
4Frictional (Searching)It is the time period between jobs when a worker is searching for or transitioning from one job to another.
5Hidden (Covered)Unemployment of potential workers that is not reflected in official unemployment statistics.
6Mechanical or Agricultural or Educationaldue to automation in certain Industries (technological) or
people engaged in the field of agriculture are rendered unemployed or
people are educated but do not get employment.
7Sudden or SeasonalWhen the job/project has ended and people are asked to go or
Season has ended & the workers are rendered unemployed (Sugar Industry).
8Voluntary or InvoluntaryAttributed to the individuals decision (higher wages or doesn’t want to work at all) or
Due to socio-economic environment (market structure, govt. intervention, aggregate demand) in which the individuals operate.
* 2 & 7 are according to Alfred Hock

Unemployment cannot be abolished completely and it stays in some form. That is why we have a term called normal unemployment.

Marxian theory of Unemployment: Marx in his ‘Theory of Surplus Value’ said, ”It is in very nature of capitalist mode of production to overwork some workers while keeping the rest as a reserve army of unemployed paupers.”

Labor Force Participation Rate (LFPR) is the ratio between the labor force and the overall size of their cohort (national population of the same age range).

*human capital is the value of the acquired skills of workers.

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