Unemployment: Definition, Types, Causes, Effects & Concepts

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Concept of Unemployment

Meaning of Unemployment

Unemployment is a state of joblessness. An unemployed person is one who is available for work, is looking for work, but cannot find it.

Unemployment
A Photo Showing Workers of a Construction Company

Unemployment or unemployed means lack of employment. It is a mismatch in the labor market, where the supply of labor (by workers) is greater than the demand for labor (by companies).

When there are more people willing to offer their work to companies than there are jobs available, a situation of unemployment occurs. When there are people who do not have a job, it is known as unemployment.

To calculate the unemployment rate of a place, those people who are of working age (between 16 and 65 years old) and actively looking for a job do not find a job, that is, what is known as the active population.

Having a high unemployment rate is a serious problem for a country as it directly affects economic growth, in addition to the problem for people who are unemployed. Thus, the effects of unemployment, on the one hand, can be economic, such as a decrease in real production, a decrease in demand and an increase in the public deficit. But it can also cause social effects such as psychological effects or discriminatory effects.

According to the World Bank, the unemployment rate is the proportion of the active population that does not have a job, but is looking for work and is available to do so. The definitions for calculating the labor force and the unemployment rate may vary slightly by country.

Types of Unemployment

  • Open unemployment: People who want to work cannot fmd work.
  • Disguised unemployment: People appear to be employed but in actual fact they are unemployed.
  • Structural unemployment: Unemployment which results from changes in the structure of production.
  • Frictional unemployment: People are unemployed because they have no information of employment opportunities elsewhere.
  • Seasonal unemployment: People are employed in one season but unemployed in another season.
  • Voluntary unemployment: People are not working because they do not want to work, not because they cannot fmd work.

Causes of Unemployment

  • Inadequate demand for goods and services.
  • Structural factors such as changes in technology.
  • Frictional factors such as lack of information.
  • Cyclical nature of production such as seasonal changes.
  • Faulty educational planning, unrelated to the need of the economy.
  • Government policies such as retrenchment and premature retirement of public officers.
  • High wage rates which many employers cannot pay.
  • Excessive rural-urban migration which leads to too many job seekers in the cities.

Remedies for Unemployment

  1. Promotion of rapid economic growth will increase demand for labour.
  2. Government employment promotion programmes such as public work and Directorate of Employment (DE) will create more job opportunities.
  3. The development of rural areas will provide job opportunities in such areas.
  4. Employment relevant educational programmes will produce suitable j ob seekers for the economy.
  5. Improved labour market information will reduce the level of frictional unemployment.
  6. An appropriate wage policy promotes a better balance between supply and demand for labour.
  7. Diversified production activities will ensure continuous employment.

Unemployment Rate is the ratio of the unemployed to the civilian labour force.

Consequences of Unemployment

Unemployment has consequences throughout society. This is because, with it, there is a reduction in the number of people with a fixed income, which reduces consumption and, consequently, affects the turnover of the economy.

Second, a territory (a city, a state or a country) with a high number of unemployed can mean poor public administration and increasing social inequalities. These factors can scare away foreign investors who, upon seeing these ills, end up concluding that investing in these places is a risk.

Last but not least, unemployment can bring serious psychological problems to those who are in this condition, such as depression. In this case, it can be said that, in addition to being an economic problem, unemployment must be seen as a public health problem.

Unemployment can generate psychological problems, such as depression.