Types of unemployment, Managerial Economics

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TYPES OF UNEMPLOYMENT 

A  person  can  be  either  in the labour force  or  not  in  the  labour  force  of  an economy. The person not  included  in  the  labour force includes those who are retired, too  ill to work, keeping the house, or simply not  looking for work. On the other hand, persons counted under the category labour force includes those who are employed or unemployed. By  employed persons we mean  those who perform any paid work  (thus housewives are not  included) and those who have jobs. On  the other hand, the unemployed as a category includes people who are not employed  but  are actively looking for  work.  Thus while considering unemployment we do  not  take into account those who are  not  in  the labour force. 

There are three kinds of unemployment,  viz.,  frictional, structural and cyclical. Fictional unemployment takes place because people switch over from one job to another.  In  many  cases the tenure  of job  gets over  and  workers  remain unemployed  till  they get another job.  In other cases workers migrate from one region to another in  search of better jobs or opt  to  remain out of job for short time periods. Frictional unemployment takes place because in an economy with imperfect  information job search  and  matching  is  not  smooth  and there  are frictions  in the  economy.  Structural unemployment,  on  the other hand, results from the mismatch between supply and demand for different kinds of  jobs. For example,  in  India  in early  1990s, when the  information  technology sector witnessed a surge in growth, there was a scarcity of computer professionals. In recent years, in  response to policy changes, a number of private airlines have come  up  in  India  and there  is  an acute shortage  of  pilots.  Structural unemployment  takes place largely due  to  structural shifts  in  an  economy and adjustments  ,to  such shifts take time.  Cyclical  unemployment arises due to fluctuations  in  aggregate demand. When  aggregate demand declines, there  is simultaneous decline  in the  demand  for  labour and  consequent increase  in unemployment. On  the other hand,  a general boom  in  the economy increases demand  for labour and  unemployment decreases. Thus overall employment is pro-cyclical in nature. 

Empirical data shows that the labour force in an economy is much less than the total population  in  the working age group. In  the US,  for  example, for which data are readily.available,  labour force constitutes about two-third  of the adult population. The percentage of population  in  the labour force, however, varies across countries  and  depends upon  the level  of development  and social traditions. The rate of unemployment u  is defined  as  the ratio of unemployed persons to total labour force. The rate of unemployment varies across countries and for a country, over time. 


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