unemployment

Unemployment

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For the efficient operation of any economy , the three factors namely real output , full employment and price stability play a prominent role In real life , business environment can never be steady . Prosperity may be followed by a panic or a decline . Economic expansions can sometimes lead to recessionary conditions where output , employment and real incomes of household fall . Price level and profits decline and ultimately people are thrown out of their jobs . Sometimes

, the economy also experiences a situation where both unprecedented rise in general price level and widespread unemployment occurs . This is most common in case of developing economies throughout the world . The fluctuations in this nature lead to uncertainty and ultimately retard economic growth The government 's spending and monetary policies also play an important role in the stability of an economy

Measuring Unemployment

The employed are those persons who work for others at a wage or salary while the self-employed are those working for themselves . The unemployed are those persons who are willing to work but unable to get jobs at the existing wage . According to Keynes , unemployment refers to involuntary idleness of manpower . The unemployment is generally measured as a percentage of the labor force . The following standard formula is used to measure it

Measurement problems

The concept of unemployment overlooks two aspects

People being excluded even though they would prefer to be working

People being included who are not seriously seeking employment

The method of classifying part-time workers may also result in an understatement of the number of unemployed workers . Part-time workers are classified as employed rather than unemployed if they work as much as a single hour per week

On the other hand , some people may be classified as unemployed who are not seriously seeking market employment

As a result of these ambiguities , some economists argue that the rate of employment is a more objective and meaningful indicator of job availability than the rate of unemployment . The performance of an economy can be analyzed to an extent by proper scrutiny of the rates of employment and unemployment . If an economy is going to realize its full potential , employment is essential . When the actual rate of unemployment exceeds the natural rate of unemployment , the actual output of the economy will fall below its potential . If an economy has to attain the level of potential output , it has to first utilize fully all the resources including labor and increase the productivity of labor , given the size of the labor . Thus , potential output is the level of output that can be achieved and sustained in the future . Maximum potential output can be achieved only by minimizing economic instability which is caused by several factors of which rate of investment and rate of inflation are very much of importance

Difference has to be drawn between the actual unemployment and the natural unemployment . In response to cyclical economic conditions the actual unemployment rate fluctuates...