Unemployment is seen as a plague in many countries. Plus, we are often told about how to tackle it and given some figures spelling the number of unemployed people. But what does this really mean? Governments do not tell much about unemployment's features and the real consequences it entails. Nevertheless, comprehending the meaning of these data is very important in order to avoid any misunderstanding. From then on, we first need to clarify the different types of unemployment. Secondly, whichever is the type of unemployment we face, we should try to look at the costs it implies to become aware of the indicator's complexity. Thus, in a first part I will distinguish between two types of unemployment: the equilibrium and the cyclical one. In my second part I will focus on the private and social costs related to each type.
[...] It equals the income people unemployed would have earned if they were working, plus the output they would have produced.[10] According to Okun, it would represent a loss of 2.5 per cent of full- employment output every percentage point associated to cyclical unemployment.[11] On the other hand, being unemployed for a certain time can also result in a missed opportunity for on-the-job training and experience, especially for young people, as Feldstein emphasised.[12] However, this is less and less the case because nowadays people can easily follow a training even if they are unemployed. [...]
[...] Then, trying to curb unemployment is not an easy task, but not undoable: in Europe, some countries like Ireland, England, Denmark or Austria had it done.[13] Bibliography Books: - Begg Dornbush R & Fisher Economics, 7th edition, McGraw-Hill - Parkin King Economics, 2nd Edition, Addison-Wesley - Layard Nickell Jackman Unemployment: Macroeconomic Performance and the Labour Market, Oxford: Oxford University Press Articles: - Feldstein private and social costs of unemployment', working paper N°223, National Bureau of Economic Research - Gomes Greenwood Rebelo ‘Equilibrium Unemployment', working paper N°5922, National Bureau of Economic Research - Jones, ‘Reservation Wages and the Cost of Unemployment', Economica, Internet sites: - http://www.sussex.ac.uk/Units/economics/ma_macro/topic3.doc (last accessed 21/03/2007) - http://www.investopedia.com/terms/o/okunslaw.asp (last accessed 21/03/2007) - http://www.vie-publique.fr/actualite/alaune/emploi-taux-chomage- europeen-baisse.html (last accessed 23/03/2007) Begg Dornbush R & Fisher Economics, 7th edition, McGraw-Hill p 387 Layard Nickell Jackman Unemployment: Macroeconomic Performance and the Labour Market, Oxford: Oxford University Press p10 From : http://www.sussex.ac.uk/Units/economics/ma_macro/topic3.doc Parkin King Economics, 2nd Edition, Addison-Wesley p 584 Gomes Greenwood Rebelo ‘Equilibrium [...]
[...] At last, we should note two more things about unemployment equilibrium: first, it partly includes frictional unemployment, that is to say the normal turnover of people in the labour market, and structural unemployment, which indicates a mismatch of skills between the jobseeker's skills and the vacancies available.[4] Second, it can be permanently influenced by a short-run unemployment fluctuation, what we call ‘hysteresis' or ‘persistence'. The graph below shows the level of equilibrium unemployment given the demand and the supply of labour. [...]
[...] The private costs can be more or less low, depending on the level of transfer payments the unemployed receives. In most of the case, if you have chosen not to get a job, it is often because you are not worse off without getting the wage you could have earned. This is a common view: if market wages are less than the worker's reservation wage plus the opportunity cost to work, the worker will choose not to work because he will be better off this way. [...]
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