Unemployment take place when a person keenly looking for job, work or employment but unable to find. Unemployment is used to evaluate the health of economy. Unemployment can be measured by dividing the number of unemployed person by the number of persons in the labor force.
It happens because people moving between jobs. Sometimes people are unemployed for a short period of time and involved in the job search. Imperfect information in labor market also causes frictional unemployment. The jobless persons are not aware with the available jobs.
Structural unemployment occurs when there is a disparity between the skill of the person and the demand of a new job. Unemployed from other industries found it difficult to get a job somewhere other than the previous industry without investing in a re-training.
Cyclical unemployment is an instinctive unemployment because of the low rate of demand for services and goods.
Real wage unemployment:
According to some economist minimum wage create unemployment in the industries where global competition of low labor cost of manufactures is stern.
There are a large amount of people who are unemployed, but officially they are not recognized as unemployed. Most of them have become discouraged and give up the active job searching.
The social and economic costs of unemployment:
Loss of income:
Generally, loss of income is a result of unemployment. Most of the unemployed people face a major down fall in their life styles or living standard. The only reason of this decline is unemployment.
Loss of national income and output:
Unemployment causes a big loss in national income and output. If someone is going to leave the labor market due to unemployment or they have lose the potential to search a job. It will cause a great loss in LRAS (long run aggregate supply). Moreover, the potential of economy growth will be damaged.
The government goes down due to the decline in tax revenues and high spending on the welfare payments. Government spends on the welfare of those people’s who are out of work or unemployed. It can cause the budget deficit and then in result government will raise the taxes on public.
Social deprivation and increasing unemployment are linked in. Unemployment cause social disturbance. There is a relation between social disturbance and crime. Therefore, unemployment increase health decline, divorce rates and decrease life probability.