Editing Unemployment (section)

==Definitions, types, and theories==
[[File:Unemployment in Mexico 2009.jpg|thumb|Unemployment in Mexico 2009]]
The state of being without any work yet looking for work is called unemployment. Economists distinguish between various overlapping types of and theories of unemployment, including [[#Cyclical unemployment|cyclical or Keynesian unemployment]], [[frictional unemployment]], [[structural unemployment]] and classical unemployment definition. Some additional types of unemployment that are occasionally mentioned are seasonal unemployment, hardcore unemployment, and hidden 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's decisions, but 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. Voluntary unemployment includes workers who reject low-wage jobs, but involuntary unemployment includes workers fired because of an economic crisis, [[deindustrialization|industrial decline]], company bankruptcy, or organizational restructuring.

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, and classical (natural) unemployment may result from the legislative and economic choices made by labour unions or political parties.

The clearest cases of involuntary unemployment are those with fewer job vacancies than unemployed workers even when wages are allowed to adjust and so even if all vacancies were to be filled, some unemployed workers would still remain. That happens with cyclical unemployment, as macroeconomic forces cause microeconomic unemployment, which can boomerang back and exacerbate those macroeconomic forces.

===Real wage unemployment===
Classical, natural, or real-wage unemployment, occurs when real wages for a job are set above the [[market-clearing]] level, causing the number of job-seekers to exceed the number of vacancies. On the other hand, most economists argue that as wages fall below a livable wage, many choose to drop out of the labour market and no longer seek employment. That is especially true in countries in which low-income families are supported through public welfare systems. In such cases, wages would have to be high enough to motivate people to choose employment over what they receive through public welfare. Wages below a livable wage are likely to result in lower labor market participation in the above-stated scenario. In addition, consumption of goods and services is the primary driver of increased [[demand for labor]]. Higher wages lead to workers having more income available to consume goods and services. Therefore, higher wages increase general consumption and as a result demand for labor increases and unemployment decreases.

Many economists{{who|date=September 2020}} have argued that unemployment increases with increased governmental regulation. For example, [[minimum wage]] laws raise the cost of some low-skill laborers above market equilibrium, resulting in increased unemployment as people who wish to work at the going rate cannot (as the new and higher enforced wage is now greater than the value of their labour).<ref>{{cite book |first=F. A. |last=Hayek |title=The Constitution of Country |location=Chicago |publisher=University of Chicago Press |year=1960 }}</ref><ref name="autogenerated2">{{cite book |first=Alain |last=Anderton |title=Economics |year=2006 |location=Ormskirk |publisher=Causeway |edition=Fourth |isbn=978-1-902796-92-5 |url-access=registration |url=https://archive.org/details/economics04edande}}</ref> Laws restricting layoffs may make businesses less likely to hire in the first place, as hiring becomes more risky.<ref name="autogenerated2"/>

However, that argument overly simplifies the relationship between wage rates and unemployment by ignoring numerous factors that contribute to unemployment.<ref name="P. Garegnani 1970">{{cite journal |first=P. |last=Garegnani |title=Heterogeneous Capital, the Production Function and the Theory of Distribution |journal=[[Review of Economic Studies]] |volume=37 |issue=3 |year=1970 |pages=407–436 |jstor=2296729 |doi=10.2307/2296729}}</ref><ref name="Robert L. Vienneau 2005">{{cite journal |first=Robert L. |last=Vienneau |title=On Labour Demand and Equilibria of the Firm |journal=[[The Manchester School (journal)|The Manchester School]] |volume=73 |issue=5 |year=2005 |pages=612–619 |doi=10.1111/j.1467-9957.2005.00467.x|s2cid=153778021 }}</ref><ref name="Ian Steedman 2009">{{cite journal |first1=Arrigo |last1=Opocher |first2=Ian |last2=Steedman |title=Input Price-Input Quantity Relations and the Numéraire |journal=[[Cambridge Journal of Economics]] |volume=3 |year=2009 |issue=5 |pages=937–948 |doi=10.1093/cje/bep005}}</ref><ref name="Wyne Godley 1989">{{cite journal |first1=Michael |last1=Anyadike-Danes |first2=Wyne |last2=Godley |title=Real Wages and Employment: A Skeptical View of Some Recent Empirical Work |journal=[[The Manchester School (journal)|The Manchester School]] |volume=62 |issue=2 |year=1989 |pages=172–187 |doi=10.1111/j.1467-9957.1989.tb00809.x}}</ref><ref name="Graham White 2001">{{cite journal |first=Graham |last=White |title=The Poverty of Conventional Economic Wisdom and the Search for Alternative Economic and Social Policies |journal=The Drawing Board: An Australian Review of Public Affairs |volume=2 |issue=2 |year=2001 |pages=67–87 |url=http://www.australianreview.net/journal/v2/n2/white.html }}</ref> Some, such as [[Murray Rothbard]], suggest that even social taboos can prevent wages from falling to the market-clearing level.<ref>{{cite book |first=Murray |last=Rothbard |title=America's Great Depression |location=Princeton |publisher=Van Nostrand |year=1963 |page=45 |title-link=America's Great Depression }}</ref>

In ''Out of Work: Unemployment and Government in the Twentieth-Century America'', economists [[Richard Vedder]] and Lowell Gallaway argue that the empirical record of wages rates, productivity, and unemployment in America validates classical unemployment theory. Their data shows a strong correlation between adjusted real wage and unemployment in the United States from 1900 to 1990. However, they maintain that their data does not take into account [[exogenous variable|exogenous events]].<ref>{{cite book |first1=Richard |last1=Vedder |first2=Lowell |last2=Gallaway |title=Out of Work: Unemployment and Government in the Twentieth-Century America |location=New York |publisher=NYU Press |year=1997 |isbn=978-0-8147-8792-2 }}</ref>

===Cyclical unemployment===
[[File:US Unemployment rate 1990 to present.png|thumb|upright=1.5|US unemployment rate, 1990—2022. The increase in unemployment during recessions (shaded) is called cyclical unemployment.]]
Cyclical, deficient-demand, or [[Keynesian economics|Keynesian]] unemployment occurs when there is not enough [[aggregate demand]] in the economy to provide jobs for everyone who wants to work. Demand for most goods and services falls, less production is needed and consequently, fewer workers are needed, wages are sticky and do not fall to meet the equilibrium level, and unemployment results.<ref name="Keynes 2007">{{cite book|title=The General Theory of Employment, Interest and Money |last=Keynes |first=John Maynard |year=2007 |orig-year=1936 |publisher=Palgrave Macmillan |location=Basingstoke, Hampshire |isbn=978-0-230-00476-4 |url=http://cepa.newschool.edu/het/essays/keynes/keynescont.htm |url-status=dead |archive-url=https://web.archive.org/web/20090316094655/http://cepa.newschool.edu/het/essays/keynes/keynescont.htm |archive-date=16 March 2009}}</ref> Its name is derived from the frequent ups and downs in the [[business cycle]], but unemployment can also be persistent, such as during the [[Great Depression]].

With cyclical unemployment, the number of unemployed workers exceeds the number of job vacancies and so even if all open jobs were filled, some workers would still remain unemployed. Some associate cyclical unemployment with frictional unemployment because the factors that cause the friction are partially caused by cyclical variables. For example, a surprise decrease in the money supply may suddenly inhibit aggregate demand and thus inhibit [[labor demand]].

[[Keynesian]] economists, on the other hand, see the lack of supply of jobs as potentially resolvable by government intervention. One suggested intervention involves [[deficit spending]] to boost employment and goods demand. Another intervention involves an expansionary [[monetary policy]] to increase the [[supply of money]], which should reduce [[interest rate]]s, which, in turn, should lead to an increase in non-governmental spending.<ref>
{{cite book
|first = Seymour E.
|last=Harris
|title=The New Economics: Keynes' Influence on Theory and Public Policy
|year=2005
|isbn=978-1-4191-4534-6
|publisher= Kessinger Publishing}}
</ref>

===Unemployment under "full employment"===
{{Main|Full employment}}
[[File:NAIRU-SR-and-LR.svg|thumb|right|Short-run [[Phillips curve]] before and after Expansionary Policy, with Long-Run Phillips Curve (NAIRU). Note, however, that the unemployment rate is an inaccurate predictor of inflation in the long term.<ref name=chang/><ref name=hossfeld/>]]

In demands based theory, it is possible to abolish cyclical unemployment by increasing the aggregate demand for products and workers. However, the economy eventually hits an "[[inflation]] barrier" that is imposed by the four other kinds of unemployment to the extent that they exist. Historical experience suggests that low unemployment affects inflation in the short term but not the long term.<ref name=chang>Chang, R. (1997) [https://www.frbatlanta.org/filelegacydocs/ACFC7.pdf "Is Low Unemployment Inflationary?"] {{webarchive|url=https://web.archive.org/web/20131113212953/https://www.frbatlanta.org/filelegacydocs/ACFC7.pdf |date=13 November 2013}} ''Federal Reserve Bank of Atlanta Economic Review'' 1Q97:4–13</ref> In the long term, the [[velocity of money]] supply measures such as the MZM ("money zero maturity", representing cash and equivalent [[demand deposit]]s) velocity is far more predictive of inflation than low unemployment.<ref name=hossfeld>Oliver Hossfeld (2010) [https://web.archive.org/web/20131113215511/http://www.hhl.de/fileadmin/texte/publikationen/forschungspapiere/HOSSFELD_USMONEY_INFERWP_2010-4.pdf "US Money Demand, Monetary Overhang, and Inflation Prediction"] ''International Network for Economic Research'' working paper no. 2010.4</ref><ref>{{cite web|url=http://research.stlouisfed.org/fred2/series/MZMV |title=MZM velocity |publisher=Research.stlouisfed.org |date=20 December 2012 |access-date=1 March 2014}}</ref>

Some demand theory economists see the inflation barrier as corresponding to the [[natural rate of unemployment]]. The "natural" rate of unemployment is defined as the rate of unemployment that exists when the labour market is in equilibrium, and there is pressure for neither rising inflation rates nor falling inflation rates. An alternative technical term for that rate is the [[NAIRU]], the ''Non-Accelerating Inflation Rate of Unemployment''. Whatever its name, demand theory holds that if the unemployment rate gets "too low", inflation will accelerate in the absence of wage and price controls (incomes policies).

One of the major problems with the NAIRU theory is that no one knows exactly what the NAIRU is, and it clearly changes over time.<ref name=chang/> The margin of error can be quite high relative to the actual unemployment rate, making it hard to use the NAIRU in policy-making.<ref name=hossfeld/>

Another, normative, definition of full employment might be called the ''ideal'' unemployment rate. It would exclude all types of unemployment that represent forms of inefficiency. This type of "full employment" unemployment would correspond to only frictional unemployment (excluding that part encouraging the [[McJob]]s management strategy) and so would be very low. However, it would be impossible to attain this full-employment target using only demand-side [[Keynesian]] stimulus without getting below the NAIRU and causing accelerating inflation (absent incomes policies). Training programs aimed at fighting structural unemployment would help here.

To the extent that hidden unemployment exists, it implies that official unemployment statistics provide a poor guide to what unemployment rate coincides with "full employment".<ref name=chang/>

===Structural unemployment===
{{Main|Structural unemployment}}
[[File:Okuns law quarterly differences.svg|thumb|[[Okun's Law]] interprets unemployment as a function of the rate of growth in GDP.]]
[[Structural unemployment]] occurs when a labour market is unable to provide jobs for everyone who wants one because there is a mismatch between the skills of the unemployed workers and the skills needed for the available jobs. Structural unemployment is hard to separate empirically from frictional unemployment except that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to abolish this type of unemployment easily.

Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from longlasting low aggregate demand, it means that many of the unemployed become disheartened, and their skills (including [[job hunting|job-searching]] skills) become "rusty" and obsolete. Problems with debt may lead to [[homelessness]] and a fall into the vicious cycle of poverty, which means that people affected in this way may not fit the job vacancies that are created when the economy recovers. The implication is that sustained ''high'' demand may ''lower'' structural unemployment. This theory of persistence in structural unemployment has been referred to as an example of [[path dependence]] or "[[hysteresis]]".

Much ''[[technological unemployment]]'',<ref name="Jerome 1934"/> caused by the replacement of workers by machines might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labour productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with the problem suggests that the problem is instead one of cyclical unemployment. As indicated by [[Okun's law]], the demand side must grow sufficiently quickly to absorb not only the growing labour force but also the workers who are made redundant by the increased labour productivity.

Seasonal unemployment may be seen as a kind of structural unemployment since it is linked to certain kinds of jobs (construction and migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques. That results in substantial and permanent structural unemployment.

===Frictional unemployment===
{{Main|Frictional unemployment}}
[[File:US beveridge 2004 through fall 2010.gif|thumb|The [[Beveridge curve]] of 2004 [[vacancy (economics)|job vacancy]] and unemployment rate (from the US Bureau of Labor Statistics)]]

Frictional unemployment is the time period between jobs in which a worker [[search theory|searches]] for or transitions from one job to another. It is sometimes called ''search unemployment'' and can be voluntary, based on the circumstances of the unemployed individual. Frictional unemployment exists because both jobs and workers are [[heterogeneity in economics|heterogeneous]], and a mismatch can result between the characteristics of supply and demand. Such a mismatch can be related to skills, payment, work-time, location, seasonal industries, attitude, taste, and a multitude of other factors. New entrants (such as graduating students) and re-entrants (such as former homemakers) can also suffer a spell of frictional unemployment.

Workers and employers accept a certain level of imperfection, risk or compromise, but usually not right away. They will invest some time and effort to find a better match. That is, in fact, beneficial to the economy since it results in a better allocation of resources. However, if the search takes too long and mismatches are too frequent, the economy suffers since some work will not get done. Therefore, governments will seek ways to reduce unnecessary frictional unemployment by multiple means including providing education, advice, training, and assistance such as [[daycare center]]s.

The frictions in the [[labour market]] are sometimes illustrated graphically with a [[Beveridge curve]], a downward-sloping, convex curve that shows a correlation between the unemployment rate on one axis and the vacancy rate on the other. Changes in the supply of or demand for labour cause movements along the curve. An increase or decrease in labour market frictions will shift the curve outwards or inwards.

===Hidden unemployment===
Official statistics often underestimate unemployment rates because of hidden, or covered, unemployment.<ref>{{Cite book |last=Komlos |first=John |url=https://www.cesifo.org/DocDL/cesifo1_wp7859.pdf |title=The Real U.S. Unemployment Rate Is Twice the Official Rate, and the Phillips Curve |publisher=CesIfo working paper No 7859 |year=2019 |pages=54–74}}</ref> That is the unemployment of potential workers that are not reflected in official unemployment statistics because of how the statistics are collected. In many countries, only those who have no work but are actively looking for work and/or qualifying for social security benefits are counted as unemployed. Those who have given up looking for work and sometimes those who are on government "retraining" programs are not officially counted among the unemployed even though they are not employed.

The statistic also does not count the "[[underemployment|underemployed]]", those working fewer hours than they would prefer or in a job that fails to make good use of their capabilities. In addition, those who are of working age but are currently in full-time education are usually not considered unemployed in government statistics. Traditional unemployed native societies who survive by gathering, hunting, herding, and farming in wilderness areas may or may not be counted in unemployment statistics.

===Long-term unemployment===
Long-term unemployment (LTU) is defined in [[European Union]] statistics as unemployment lasting for longer than one year (while unemployment lasting over two years is defined as ''very long-term unemployment''). The United States [[Bureau of Labor Statistics]] (BLS), which reports current long-term unemployment rate at 1.9 percent, defines this as unemployment lasting 27 weeks or longer. Long-term unemployment is a component of [[structural unemployment]], which results in long-term unemployment existing in every social group, industry, occupation, and all levels of education.<ref>{{Citation |last1=Bivens |first1= Josh |last2=Shierholz |first2=Heidi |title=Lagging Demand, Not Unemployability, Is Why Long-term Unemployment Remains So High |publisher=Economic Policy Institute |url=http://www.epi.org/publication/lagging-demand-is-behind-high-long-term-unemployment/}}</ref>

In 2015 the European Commission published recommendations on how to reduce long-term unemployment.<ref>{{cite web |url=https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32016H0220%2801%29&qid=1456753373365 |title=COUNCIL RECOMMENDATION of 15 February 2016 on the integration of the long-term unemployed into the labour market |id=2016/C 67/01 |date=20 February 2016 |work=[[Official Journal of the European Union]]}}</ref> These advised governments to:

* encourage long-term unemployed people to register with an [[Public employment service|employment service]];
* provide each registered long-term unemployed person with an individual in-depth assessment to identify their needs and potential within 18 months;
* offer a tailor-made job integration agreement (JIA) to all registered long-term unemployed within 18 months. These might include measures such as [[Mentorship|mentoring]], help with [[Job hunting|job search]], [[further education]] and [[training]], support for housing, transport, child and care services and rehabilitation. Each person would have a single point of contact to access this support, which would be implemented in partnership with employers.

In 2017–2019 it implemented the Long-Term Unemployment project to research solutions implemented by EU member states and produce a toolkit<ref>{{Cite web|title=LTU project - Long Term Unemployment project - EUROPEAN SOCIAL FUND - European Commission|url=https://ec.europa.eu/esf/transnationality/ltu-project|access-date=11 March 2021|website=EUROPEAN SOCIAL FUND|language=en}}</ref> to guide government action. Progress was evaluated<ref>{{Cite web|title=Commission publishes report on reintegration of long-term unemployed|url=https://ec.europa.eu/social/main.jsp?catId=89&langId=en&newsId=9346|access-date=11 March 2021|website=ec.europa.eu|language=en}}</ref> in 2019.

===Marxian theory of unemployment===
[[File:Marx - Theorien über den Mehrwert, 1956 - 5708926.tif|thumb|[[Karl Marx]], ''Theorien über den Mehrwert'', 1956]]
{{Blockquote|text=It is in the very nature of the [[capitalist mode of production (Marxist theory)|capitalist mode of production]] to overwork some workers while keeping the rest as a [[reserve army of labour|reserve army]] of unemployed paupers.|author=Marx|source=[[Theories of Surplus Value|Theory of Surplus Value]]<ref name="Marx 1863 478 or at MEW, 26.3, 300"/>}}

Marxists share the Keynesian viewpoint of the relationship between economic demand and employment, but with the caveat that the market system's propensity to slash wages and reduce labor participation on an enterprise level causes a requisite decrease in aggregate demand in the economy as a whole, causing crises of unemployment and periods of low economic activity before the [[capital accumulation]] (investment) phase of economic growth can continue. According to [[Karl Marx]], unemployment is inherent within the unstable capitalist system and periodic crises of mass unemployment are to be expected. He theorized that unemployment was inevitable and even a necessary part of the capitalist system, with recovery and regrowth also part of the process.<ref>{{Cite web |url=https://www.marxists.org/archive/hardcastle/unemployment.htm |title=Marx and Keynes on Unemployment |access-date=15 June 2018 |archive-url=https://web.archive.org/web/20180615083213/https://www.marxists.org/archive/hardcastle/unemployment.htm |archive-date=15 June 2018 |url-status=dead  }}</ref> The function of the [[proletariat]] within the capitalist system is to provide a "[[reserve army of labour]]" that creates downward pressure on wages. This is accomplished by dividing the proletariat into surplus labour (employees) and under-employment (unemployed).<ref>Marx, Karl (2009). Capital: An Abridged Edition. Edited by David McLellan, Oxford Paperbacks, Oxford, UK. {{ISBN|978-0-19-953570-5}}.</ref> This reserve army of labour fight among themselves for scarce jobs at lower and lower wages. At first glance, unemployment seems inefficient since unemployed workers do not increase profits, but unemployment is profitable within the global capitalist system because unemployment lowers wages which are costs from the perspective of the owners. From this perspective low wages benefit the system by reducing [[economic rent]]s. Yet, it does not benefit workers; according to Karl Marx, the workers (proletariat) work to benefit the bourgeoisie through their production of capital.<ref>{{Cite web | url=https://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch01.htm | title=Communist Manifesto (Chapter 1)}}</ref> Capitalist systems unfairly manipulate the market for labour by perpetuating unemployment which lowers laborers' demands for fair wages. Workers are pitted against one another at the service of increasing profits for owners. As a result of the capitalist mode of production, Marx argued that workers experienced alienation and estrangement through their economic identity.<ref>{{Cite web | url=https://www.marxists.org/glossary/terms/a/l.htm | title=Glossary of Terms: Al}}</ref> According to Marx, the only way to permanently eliminate unemployment would be to abolish capitalism and the system of forced competition for wages and then shift to a socialist or communist economic system. For contemporary Marxists, the existence of persistent unemployment is proof of the inability of capitalism to ensure full employment.<ref>{{cite web|last=Marx|first=Karl|title=The Communist Manifesto|url=http://www.marxists.org/archive/marx/works/1848/communist-manifesto/index.htm|access-date=22 October 2010}}</ref>