Unemployment

In economics, a person who is able and willing to work yet is unable to find a paying job is considered unemployed. The unemployment rate is the number of unemployed workers divided by the total civilian labor force, which includes both the unemployed and those with jobs (all those willing and able to work for pay). In practice, measuring the number of unemployed workers actually seeking work is notoriously difficult. There are several different methods for measuring the number of unemployed workers. Each method has its own biases and the different systems make comparing unemployment statistics between countries, especially those with different systems, difficult.

Impact on society and the economy

Some of the likely costs of unemployment for society include increased poverty, crime, political instability, mental health problems, and diminished health standards. Understanding the forces that create unemployment, and then trying to mitigate their negative effects to the greatest extent possible, is a central issue in economics.

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Costs

Joblessness can hit individual job-seekers hard. Lacking a job often means lacking social contact with fellow employees, a purpose for many hours of the day, lack of self-esteem, mental stress and illness, and of course, the ability to pay bills and to purchase both necessities and luxuries. This last is especially serious for those with family obligations, debts, and/or medical costs, especially in a country such as the U.S., where the availability of health insurance is often linked to holding a job. Dr. M. Harvey Brenner, among others, has shown that increasing unemployment raises the crime rate, the suicide rate, and encourages bad health.http://ashleymac.econ.vt.edu/ashley/3204/brenner.pdf Because unemployment insurance in the U.S. typically does not even replace 50 percent of the income one received on the job (and one cannot receive it forever), the unemployed often end up tapping welfare programs such as Food Stamps — or accumulating debt, both formal debt to banks and informal debt to friends and relatives.

Related Topics:
Health insurance - Crime - Suicide - Health - Welfare - Food Stamps - Debt

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Some hold that many of the low-income jobs (such as McJobs) aren't really a better option than unemployment with a welfare state (with its unemployment insurance benefits). But since it is difficult or impossible to get unemployment insurance benefits without having worked in the past, these jobs and unemployment are more complementary than they are substitutes. (These jobs are often held short-term, either by students or by those trying to gain experience; turnover in most McJobs is high, in excess of 30%/year.) Unemployment insurance keeps an available supply of workers for the McJobs, while the employers' choice of management techniques (low wages and benefits, few chances for advancement) is made with the existence of unemployment insurance in mind. This combination promotes the existence of one kind of unemployment, frictional unemployment.

Related Topics:
McJob - Welfare state - Unemployment insurance - Frictional unemployment

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Another cost for the unemployed is that the combination of unemployment, lack of financial resources, and social responsibilities may push unemployed workers to take jobs that do not fit their skills or allow them to use their talents. That is, unemployment can cause underemployment (definition 1). This is one of the economic arguments in favor of having unemployment insurance.

Related Topics:
Underemployment - Unemployment insurance

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Second, unemployment makes the employed workers more insecure in their jobs, worrying about being replaced, as Alan Greenspan of the U.S. Federal Reserve has suggested.http://www.federalreserve.gov/boarddocs/hh/1998/july/testimony.htm, http://www.federalreserve.gov/BOARDDOCS/TESTIMONY/1999/19990617.htm,

Related Topics:
Alan Greenspan - Federal Reserve

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http://www.federalreserve.gov/BOARDDOCS/TESTIMONY/1999/19990617.htm. This feared cost of job loss can spur psychological anxiety, weaken labor unions and their members' sense of solidarity, encourage greater work-effort and lower wage demands, and/or abet protectionism. This last means efforts to preserve existing jobs (of the "insiders") via barriers to entry against "outsiders" who want jobs, legal obstacles to immigration, and/or tariffs and similar trade barriers against foreign competitors. The impact of unemployment on the employed is related to the idea of Marxian unemployment. Finally, the existence of significant unemployment raises the monopsony power of one's employer: that raises the cost of quitting one's job and lowers the probability of finding a new source of livelihood.

Related Topics:
Labor union - Protectionism - Immigration - Tariff - Trade barrier - Marxian unemployment - Monopsony

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Finally, high unemployment implies low real Gross Domestic Product: we are not using our resources as completely as possible and are thus wasting our opportunities to produce goods and services that allow people to survive and to enjoy life. Much unemployment — called deficient-demand or cyclical unemployment — thus represents a profound form of inefficiency, sometimes called "Keynesian inefficiency." (However, this loss of production might instead be caused by classical unemployment or Marxian unemployment, which reduce potential output by restricting supply.) Okun's Law tells us that for the U.S., the economy misses out on about two percent of its potential output for each one percentage point of unemployment above the "full employment" unemployment rate or NAIRU (see below). Alternatively, this "law" says that as unemployment rises by one percentage point, say from 5% to 6% of the civilian labor force, the percentage of potential output that could have been produced but was not rises by about two points.

Related Topics:
Gross Domestic Product - Cyclical - Inefficiency - Classical unemployment - Marxian unemployment - Potential output - Okun's Law - Full employment - NAIRU

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Benefits

Benefits for the entire economy arising from unemployment include that it keeps inflation from being high, following the Phillips curve, or from accelerating, following the NAIRU/natural rate of unemployment theory. Relatedly, a small amount of frictional unemployment allows employers to find the employees most suited to the jobs offered, while allowing workers to find the jobs that better fit their tastes, talents, and needs. This amount may be very small, however, since it is relatively easy to seek a new job without losing one's current one.

Related Topics:
Inflation - Phillips curve - NAIRU - Natural rate of unemployment - Frictional unemployment

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As in the Marxian theory of unemployment, special interests may also benefit: employers often like having their employees in fear of losing their jobs, and thus working hard, keeping their wage demands low, etc. As noted, unemployment may increase employers' monopsony power. Unemployment may thus promote labor productivity and profitability.

Related Topics:
Marxian theory of unemployment - Special interests - Monopsony - Labor productivity - Profitability

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Some say that slow economic growth and the resulting unemployment are actually good, since the constantly needed growth of the GDP cannot be sustained forever, given resource constraints and environmental impacts. But others ask if is it fair to burden the unemployed (usually those at the bottom of the economic heap) with the costs of limiting the use of resources and the abuse of the environment. This suggests that we should seek ways to improve the efficiency of our resource management and environmental stewardship to attain growth and low unemployment in order to make sure that the burdens are distributed fairly.

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