Unemployment
Unemployment arises when people within the working age are not working yet actively seeking employment. The International Labor Organization (ILO) defines the unemployed as an individual who is (1) without work, (2) currently available for work and (3) actively seeking work – during the reference period. Unemployment is measured through the unemployment rate rather than the number of the unemployed. The unemployment rate disregards the population growth and demographic changes and enables comparability between time periods.
The reference period is usually specified as four weeks preceding the counting of the unemployed at a specific time point. However, the four weeks period is identified by the ILO for international comparability, yet this varies from country to country. Due to the inconsistency of reference periods among countries, the comparability between national unemployment rates is sometimes problematic and – at some instances – requires a challenging and substantial effort by researchers to adjust and standardize data.
The cause of unemployment is explained differently by various schools of thoughts in economics. To begin with, Classical Economics argues that unemployment occurs when wages are higher than the equilibrium point between labor demand and supply. Thus, job seekers will exceed employment vacancies. Abiding by the Invisible Hand market mechanism, wages will fall to match the equilibrium point – given that the market was free to react with no external interventions. Alternatively, Keynesian Economics (also known as cyclical) debates that due to occasional recessions the demand for goods will decrease and consequently the demand for labor. Wages are usually sticky and do not decrease to match the market equilibrium. Keynesians suggest that government interventions through fiscal and monetary measures are required to react to the macroeconomic situation. Thus, government interventions during recessions boost the economy and consequently minimize unemployment. On the other hand, Marxian Theory claims that unemployment is an inescapable result of the capitalist system. Unemployment increases profitability for capitalists as the unemployed are considered as the reserve army that threatens the employed to be replaced. Accordingly, the employed will overwork and accept underpayment.
The reference period is usually specified as four weeks preceding the counting of the unemployed at a specific time point. However, the four weeks period is identified by the ILO for international comparability, yet this varies from country to country. Due to the inconsistency of reference periods among countries, the comparability between national unemployment rates is sometimes problematic and – at some instances – requires a challenging and substantial effort by researchers to adjust and standardize data.
The cause of unemployment is explained differently by various schools of thoughts in economics. To begin with, Classical Economics argues that unemployment occurs when wages are higher than the equilibrium point between labor demand and supply. Thus, job seekers will exceed employment vacancies. Abiding by the Invisible Hand market mechanism, wages will fall to match the equilibrium point – given that the market was free to react with no external interventions. Alternatively, Keynesian Economics (also known as cyclical) debates that due to occasional recessions the demand for goods will decrease and consequently the demand for labor. Wages are usually sticky and do not decrease to match the market equilibrium. Keynesians suggest that government interventions through fiscal and monetary measures are required to react to the macroeconomic situation. Thus, government interventions during recessions boost the economy and consequently minimize unemployment. On the other hand, Marxian Theory claims that unemployment is an inescapable result of the capitalist system. Unemployment increases profitability for capitalists as the unemployed are considered as the reserve army that threatens the employed to be replaced. Accordingly, the employed will overwork and accept underpayment.
