Outline What Is Unemployment Economics Essay
According to Investopedia unemployment occurs when a person who is actively searching for employment is unable to find work (unemployment, n.d.). This problem is caused by lack of skills, capital, employment opportunities and qualifications (unemployment, n.d.). It also stems from loss of jobs to machine/technology, people’s unwillingness to work and economic downturn. Unemployment itself can cause other problems, for example human resources, crime and social unrest. (Durueke, 2012) Unemployment is often used as a measure of the wealth of the economy. The most frequently cited measure of unemployment is the unemployment rate, this is the number of unemployed persons divided by the number of people in the labour force (unemployment, n.d.). The current unemployment rate is 14.3% and it’s the main cause of poverty. When everyone is employed it usually means that there is an equality of opportunities to work by the free availability of land and capital. However when either of the two factors of production is limited or stopped, unemployment will result along with poverty, thus making it an economic issue (htt1).
When the economy is not doing well businesses lay off workers, this causes even more people to be unemployed and not only are the unemployed not working, and therefore not contributing to the economy, but they will also be claiming benefits and costing the government money. People who are unemployed changes their spending habits and normally pay only bills that are necessary and don’t spend on things that aren’t absolutely necessary.
Review economic theories on unemployment
Economic theory, as well as historical record, tells us that unemployment is not just a tragedy for the single unemployed worker and their dependents; it is an economic problem that affects the whole. This is especially true when lots of workers do not have jobs (htt2). Unemployment rate, when high will slow the entire economy down .A high unemployment rate is not just a problem for the unemployed; it is also a problem for those who are still working (htt2). The burden of providing the money for government services, in the form of taxes, falls increasingly upon those still employed when large numbers of people are not working (htt2).
Yet unemployment, like most things that affect the economy, is not all bad when the whole economic system (macroeconomics) is studied (htt2). For instance, from the viewpoint of an employer, a high unemployment rate creates an advantage; it gives them a wide range of applicants for any job opening that they have available, and it also helps decrease the amount of wages that an employer has to pay their employees (htt2). In economic lingo, high unemployment creates a labor surplus. Conversely a low unemployment rate results is less choices when selecting workers and being forced to increase wages; this in turn will affect the whole economy by driving up prices on goods and services. It is for these reasons that economists sometimes debate what the ideal unemployment rate should be for an economy (htt2). Both high and low unemployment rates create problems for the economy (htt2) (Eckstein, 2009)
The Classical Theory of Unemployment
Figure 1: A Supply and Demand Model for Labor. In a smoothly functioning <a href='/article/Market' title='Market'>market</a>, the equilibrium wage and quantity of labor would be set by market forces. (Source: <a href='http://ase.tufts.edu/gdae/' class='external text' title='http://ase.tufts.edu/gdae/' rel='nofollow'>GDAE</a>)Figure 1: A Supply and Demand Model for Labor. In a smoothly functioning market, the equilibrium wage and quantity of labor would be set by market forces (htt3) (Source: GDAE)
In Classical economic theory, unemployment is seen as a sign that smooth labor market functioning is being obstructed in some way (htt3). The Classical approach assumes that markets behave as described by the idealized supply-and-demand model: the labor market is seen as though it were a single, static market, characterized by perfect competition, spot tr