Explain how unemployment is calculated and describe differen

Explain how unemployment is calculated and describe different types of unemployment. Why is there always going to be some amount of unemployment in the economy? What problems arise in interpreting the unemployment data?

Solution

Unemployment rate is use to calculate unemployment in an economy

Unemployment rate is the ratio of number of unemployed people in an economy and labour force

Mathematically,

Unemployment rate = Nunber of unemployed people in the economy / Labour force

In other words, unemployment in any economy is the percentage of labour force that are not employed by actively looking for job.

Different types of Unemployment (mainly 4 types):

1. Cyclic unemployment = When people lose jobs and become unemployed due to change in the business cycle specifically when economic activities slow down and demand for labour falls, then these people are cyclically unemployed.

2. Structural Unemployment = When people become unemployed due to change in the structure of the economy and this leads to mismatch their skills with the required skill. In other words, when there is structural change in the economy it leads o make the skills of workers obsolete which result in unemployment. This type of unemployemnt is called structural unemployment.

3. Frictional Unemployment = When people left job to get the new job or people start looking for their first job. So in between this time when they looking for job and are unemployed, then they are called frictionally unemployed.

4. Seasonal Unemployment = When people lose job because of season in which they cannot get work then these people are called seasonally unemployed. Mainly it found in agriculture sector.

There is always going to be some amount of unemployment in the economy because it takes times to find a people the right jobs in which his/her skilled is matched or there is also some people unemployed because they do not have the skills that employer is looking for. So in short, there always be either fricitional unemployment or structural unemployment or both will be there.

It is so because even at Full employment level only the cyclical unemployment will be zero not alll types of unemployment is zero. That\'s why there is always some amount of unemployment in the economy.

Probelm arises in Interpreting the unemployment data:

1. Discourage worker : Unemployment data does not considered discourage workers. discourage workers are those workers who are discourage by not getting any job when they activelly looking for jobs and this made them convince that they can\'t able to get the job so they stop looking for jobs.Due to this they are not counting in the labour force and which results in low unemployement rate, which is not the case.

2. Part Time - Full Time Job : Unemployment data does not differentiate between the part time and full time workers. As those people who are doing part time job and looking for full time job are consider as employed when they actually looking for a job. This also reduce unemployement which is not true.

3. Underemployment : Unemployement data does consider those people whose skills are mismatch with the job and get a very low wages in comparision to their skills. As this is underemployment, but the unemployment data consider them also as employed which is again a problem.