INTRODUCTION

• The equilibrium level of income and employment determines the economic condition of a country.
• When the economy is in equilibrium at less than full-employment level of output, unemployment occurs.
• There are various types of unemployment, each caused by different factors.
• The nature and causes of unemployment in developing countries like India differ from those in developed countries.
• Unemployment and job insecurity are significant causes of labour unrest in both developed and developing countries.
• Unemployment haunts the working class, leading to a constant focus on achieving full employment as the goal of all countries.
• Unemployment is defined as a state where there are a large number of able-bodied persons of working age who are willing to work but cannot find work at the current wage levels.
• People who are unfit for work (due to physical or mental reasons) or do not want to work (e.g., sadhus) are excluded from the category of the unemployed.
• Mere engagement in some productive occupation does not necessarily mean absence of unemployment.
• People who are only partially employed or engaged in inferior jobs, though capable of doing better jobs, are considered in a state of underemployment, which is harmful to the prosperity of a country.
• Underemployment is equally bad as unemployment for a country’s economy.
• Under capitalism, some amount of unemployment seems inevitable, but the goal is to keep the number of unemployed as low as possible.

TYPES OF UNEMPLOYMENT

Frictional Unemployment

• There are three main types of unemployment: frictional unemployment, structural unemployment, and cyclical unemployment.
• Understanding the difference between these types is essential to grasp the concept of full employment.
• Frictional unemployment occurs due to workers who have voluntarily quit their previous jobs and are searching for better jobs or looking for employment for the first time.
• Workers in frictional unemployment are said to be between jobs.
• They remain unemployed for a short period due to frictions such as lack of market information about job availability and lack of mobility.
• The distinguishing feature of frictionally unemployed persons is that the number of job vacancies equals the number of unemployed workers.
• Frictional unemployment is temporary as it takes time for job seekers to find available positions.
• New frictionally unemployed persons emerge as previously unemployed workers secure jobs, creating a continuous cycle.
• There is always some level of frictional unemployment due to imperfections in market information.
• Frictional unemployment is considered voluntary unemployment since workers have either quit voluntarily, are entering the labour force for the first time, or are re-entering after a break (e.g., after having children).

Structural Unemployment

• Structural unemployment always exists to some extent in a growing economy.
• Structural unemployment refers to the mismatch between the skills of unemployed workers and the demand for specific types of labor.
• It occurs when the demand for one kind of labor expands while the demand for another kind declines, often due to changes in the structure of demand for industrial products or technological advancements.
• The distinguishing feature of structural unemployment is that the unemployed workers lack the skills required by the expanding industries.
• It can also occur due to the mismatch between the location of job vacancies in expanding industries and the location of the unemployed workers.
• Example of structural unemployment: As production techniques evolve, some workers lose their jobs due to newer, more efficient technologies. This is an inevitable consequence of technological progress.
• Workers affected by technological progress must acquire new skills and training before they can be absorbed into the new jobs.
• Example: When computerization of banks and offices occurred in India, some workers were rendered unemployed but found new jobs after training in computer operations.
• Structural unemployment tends to last longer than frictional unemployment as it takes time to acquire new skills or move to new job locations.
• Structural unemployment is more serious than frictional unemployment because structurally unemployed individuals often face long-term unemployment while they gain the necessary skills or training.
• Structurally unemployed individuals may take low-paying, unskilled jobs in the interim or remain unemployed while searching for jobs that match their skills.
• Frictional and structural unemployment together constitute the natural rate of unemployment, which is typically around 4-5% of the labor force in free-market economies.
• When unemployment is equal to the natural rate of unemployment, full employment is considered to exist.
• In the late 1990s, the natural rate of unemployment in the United States was estimated to be 5.2%.
• In 2010, the actual unemployment rate in the U.S. rose to 10% due to recessionary conditions, higher than the natural rate.
• Full employment can still prevail despite the presence of the natural rate of unemployment, as it is unavoidable in a changing economy.