Theory of economics

Figure 7. Type of unemployment⁶

The too many details and exclusions mentioned above make a lot of people believe that unemployment is vague and that the rate does not fully represent the actual number of people who are unemployed. So, it is a good idea to also look at the term “employment,” which the Bureau of Labor Statistics (BLS) describes as individuals aged 16 and above who have recently put hours into work in the past week, paid or otherwise, because of self-employment.

Demand deficient unemployment. This is the biggest cause of unemployment that happens especially during a recession. When there is a reduction in the demand for the company’s products or services, they will most likely cut back on their production, making it unnecessary to retain a wide workforce within the organization. In effect, workers are laid off.

Frictional unemployment is a type of unemployment that arises when workers are searching for new jobs or are transitioning from one job to another. It is part of natural unemployment and hence is present even when the economy is considered at full employment.

Real wages are nominal wages adjusted for the effects of inflation. Changes in nominal wages can be expressed as an index, and if we divide this by changes in the price level (and multiply by 100) we can derived an index for real wages.

Voluntary unemployment happens when a worker decides to leave a job because it is no longer financially fulfilling. An example is a worker whose take-home pay is less than his or her cost of living.

Structural unemployment happens when the skills set of a worker does not match the skills demands of the jobs available or if the worker cannot reach the geographical location of a job. An example is a teaching job that requires relocation to China, but the worker cannot secure a work visa due to certain visa restrictions. It can also happen when there is a technological change in the organization, such as workflow automation.

Seasonal unemployment occurs when people are unemployed at certain times of the year, because they work in industries where they are not needed all year round. Examples of industries where demand, production and employment are seasonal include tourism and leisure, farming, construction and retailing.

While it is easy to measure the price changes of individual products over time, human needs extend much beyond one or two such products. Individuals need a big and diversified set of products as well as a host of services for living a comfortable life. They include commodities like food grains, metal and fuel, utilities like electricity and transportation, and services like healthcare, entertainment, and labor. Inflation aims to measure the overall impact of price changes for a diversified set of products and services, and allows for a single value representation of the increase in the price level of goods and services in an economy over a period of time.