Understanding Unemployment and Types

What is Unemployment?

Unemployment is the condition whereby the labor force, or people who are of working age, are not currently employed but are actively seeking employment. These people are able and willing to work, and their job search demonstrates that they would like to work. It is a crucial gauge that shows the health of a nation's economy and the availability of jobs within that economy. The unemployed are people who have recently lost their jobs, re-entering the labor force, or seeking their first job after completing education or training. Unemployment is distinct from those who are not part of the labor force, such as retirees, students not looking for work, or individuals who have voluntarily chosen not to seek employment.

How is Unemployment measured? 

Unemployment in the UK is measured using two different approaches:

• The International Labor Organization (ILO) survey

• The Claimant Count 

The ILO surveyEvery three months, a detailed survey is sent to a random sample of households. People taking part decide if they are unemployed based on the ILO criteria:

• They are ready to start work within the next two weeks.

• They have actively looked for a job in the past month.

This survey is used worldwide, making it easier to compare unemployment rates across countries.

The Claimant Count:

• Tracks the number of people receiving Jobseeker's Allowance (JSA).

• Has stricter criteria for being classified as unemployed compared to the ILO survey.

• Requires claimants to regularly meet with a "work coach."

Unemployment rate formula :

(taken from wallstreetmojo.com)

Types of Unemployment

Structural unemployment

Structural unemployment occurs when there is a mismatch between the skills workers have and the skills required for the available jobs in the economy. This usually comes about as a result of changes in the economic structure. A drop in the secondary sector, for example, and a rise in the tertiary sector may render workers ill-equipped to fill the newly available jobs. Without proper retraining and assistance, these workers could experience unemployment or underemployment.

Cyclical, or demand-deficient unemployment 

Cyclical, or demand-deficient unemployment, is caused by a decrease in the aggregate demand level of the economy. This usually occurs during economic downturns or recessions. Because labor demand is derived from the demand of goods and services, a decrease in output will prompt firms to decrease their labor, thus increasing unemployment.

Seasonal Unemployment:

Seasonal unemployment occurs when labor demand varies because of the time of year, wherein some industries or sectors go into a lean season of minimal activity. This happens to be very usual in such industries as agriculture, tourism, and retail, which usually are tied to seasonal employment. Workers may be employed during peak seasons but face periods of unemployment until the onset of the following season.

Frictional Unemployment:

Frictional unemployment occurs during the period when workers are between jobs, usually in cases where workers have quit their previous employment voluntarily with the hope of finding another job. It is temporary because workers are actively looking for jobs that fit them better in terms of job skills, job preference, or career advancement. It indicates the time taken by individuals in changing from one job to another and is considered very natural in a dynamic labour market.

Real Wage Unemployment:

Real wage unemployment occurs whenever wages are determined to be above the free-market equilibrium level, for instance because of minimum wage laws or collective bargaining agreements. This is a type of wage inflexibility, with wages and prices being 'sticky' and maintaining levels above what the market would otherwise bear; employers may either be unwilling or unable to hire at this higher level of wage. The excess supply of laborers at this wage rate, who cannot get jobs, is real wage unemployment.

Glossary:

Underemployment: occurs when workers want to work for more hours than they currently work, and they are working in a job that requires lower skills than they have.

Aggregate demand: Total demand in the economy 

Derived demand: Demand for labour is derived from the demand for product