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Unemployment occurs when workers who want to work are unable to find jobs that match their skills and preferences. The unemployment rate, which is determined by dividing the total number of employed persons by the total number of jobless people, can be used to measure unemployment.
Unemployment can have various causes and types. Some of the common types are:
- Frictional unemployment: Workers who are temporarily unemployed do so because they are switching careers, relocating, or looking for better possibilities. Short-term and voluntary unemployment of this kind is typical.
- Cyclical unemployment: Workers experience this when there is a decline in the economy or a recession. This kind of unemployment is typically involuntary and is influenced by the economic cycle.
- Structural unemployment: This occurs when there is a discrepancy between the market's demand for labor and an employee's skill set, resulting in job loss. Technological advancements, globalization, or changes in consumer preferences can all contribute to this form of unemployment. Long-term and challenging to overcome unemployment of this kind.
- Institutional unemployment: This occurs when institutional issues like rules, legislation, unions, the minimum wage, or discrimination make it difficult for workers to get or hold jobs. Long-term and persistent unemployment of this kind is another possibility.
Individuals and society can both suffer from unemployment. For an individual, unemployment can result in lost wages, a decreased standard of living, diminished self-esteem, mental health issues, social isolation, and a rise in crime. In terms of society, unemployment can result in decreased economic output, increased welfare program spending, decreased tax revenues, increased inequality, social unrest, and political instability.
As a result, politicians and economists should be concerned with understanding and addressing unemployment. The use of fiscal or monetary policy to increase aggregate demand, the improvement of education and training initiatives, the provision of incentives for job creation, the promotion of labor mobility, the reduction of rigidities in labor markets, the encouragement of innovation and entrepreneurship, and the improvement of social protection systems are some potential approaches to lowering unemployment.
