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Unemployment is a state which occurs when a person of working age is actively searching for a gainful work because of lack of opportunity to offer skills in exchange for financial gain (Gitis par. 7). This means that unemployment occurs when able women and men are involved in searching for gainful job because they cannot find any at the present.
Types of Unemployment
The main types of unemployment are classical unemployment, cyclical unemployment, structural unemployment, frictional unemployment, hidden unemployment, and underemployment (Kim par. 9). Classical unemployment is a situation which arises when real wages surpass the market clearing level, thus, making the number of available vacancies to be less than that of the job-seekers. Cyclical unemployment occurs when the economy cannot create enough jobs for all the job-seekers.
This type of unemployment often occurs during economic depression or downfall in the business cycle. Structural unemployment occurs when the labor market cannot supply enough opportunities for the job-seekers due to a disparity between skills required for the available jobs and skills possessed by those seeking employment (McConnell and Macpherson 34). Frictional unemployment is the duration it takes a job-seeker to change jobs or transition from one opportunity to another in the labor market.
Hidden unemployment is the missing data about job-seekers that the job market cannot absorb, especially within the official unemployment database. For instance, persons who have given up on seeking for job opportunities fall in this category (Goldin par. 11). Lastly, underemployment occurs when the level of skills of an employee surpasses the job that the labor market can supply.
Full employment and natural rate of unemployment
Full employment refers to a situation where labor resources that are available in the market are optimally used. This means that full employment is the optimal embodiment of the unskilled and skilled labor in the labor market in the most competent way. On the other hand, the natural rate of unemployment refers to the general percentage of the unemployed labor force in the market but seeking or willing to get employment at any given time (Kim par. 18).
Impacts of unemployment on the economy
The first impact of unemployment on the economy is the extra financial costs that a government may have to incur when unemployed persons are paid some stipends. Thus, apart from lost income from idle labor resources, such government will have to incur the extra cost due to compensation benefits. The second impact of unemployment is reduced spending power in the economy since the unemployed would focus on saving than spending (Williams par. 14).
Besides, unemployment may lead to recession in the economy since health costs, living standard, and income per individual will be adversely affected. In addition, unemployment may result in tension and conflict within the society, especially when taxes are increased to raise money to take care of the unemployed (McEachern 19). The social effects of unemployment include reduced economic status, increased insecurity, increased cases of suicide, and labor market redundancy.
Solutions to lower unemployment
The first way to lower unemployment is through tax credits to businesses that hire a certain number of employees within a specified period. Besides, reducing the minimum wage would give employers opportunity to hire more labors from the market. In addition, investing in relevant training facilities would ensure that education programs are designed to offer skills that are practical and necessary in the labor market to reduce redundancy (Goldin par. 12).
Gitis, Ben. How Minimum Wage Increased Unemployment and Reduced Job Creation in 2013. 2013. Web.
Goldin, Nicole. Ways to Improve Unemployment Rate. 2014. Web.
Kim, Daniel. Minimum-Wage Increase Would Benefit Many. 2014. Web.
McConnell, Campbell and David Macpherson. Contemporary Labor Economics. London, UK: McGraw-Hill Education, 2013. Print.
McEachern, William. Economics: A Contemporary Introduction. Alabama, Al: Cengage Learning, 2011. Print.
Williams, Sean. 3 Pros and Cons of Raising the Federal Minimum Wage: Where Do You Stand? 2015. Web.