Question

Question: Description of Unemployment

*definition,

*measurement

*effects

Answer 1

Unemployment

Definition: Unemployment is a state/condition in an economy where people above a specific age group do not have a paid job or are a part of self-employment but are willing to be employed and available for work.

There are different types of unemployment:

1.Frictional unemployment: It occurs when people change jobs. Thus the time period between switching from one job to another where a person has no job in hand is called frictional unemployment.

2. Cyclic unemployment: It happens at times of fluctuations in the business cycle when the aggregate demand falls in the economy due to which people have to lose their jobs.

3. Structural unemployment: It occurs when there is a mismatch between the skills of the workers and the type of work available in the market. Thus people stay unemployed because they can't work that matched their skills.

Measurement: The simple way to measure unemployment in the economy is to find the unemployment rate.

The unemployment rate is calculated as the percentage of the labor force that is unemployed. The labor force includes all the employed and unemployed people of the working-age population.

Unemployment rate = (No. of unemployed / Labor force)*100

Effects:

There are many effects of unemployment in the economy like:

1. Fall in aggregate demand - When workers lose their job their purchasing power decreases, a fall in the overall purchasing power in the economy will lead to falling in aggregate demand which is a major cause of depression in the economy.

2. Recession - A decrease in demand due to a decrease in purchasing power in the economy will lead to shut down of companies that are continuously incurring losses, thus creating more unemployment and lowering of economy's GDP.

3. Poverty - If unemployment keeps increasing, people won't even have money left to buy necessities, and poverty will keep increasing.