Unemployment occurs when a person is willing to work at the prevailing market rate but are unable to find work at that wage - unemployment exists.
A person may be "voluntarily unemployed" if for example their unearned income gives them the freedom to choose not to work. This person is not unemployed from an economics point of view but is simply putting leisure before income.
The economic cost of unemployment to society at large is the Forgone Output (Opportunity Cost) that could have been achieved if the unemployed was working.
Wider social costs deriving from relative poverty such as loss of self esteem, pressure on family life, etc. add greatly to the problems associated with unemployment.
Short term can be caused as people are between jobs or having just finished education are new to the labour force etc.
Causes of Unemployment
Unemployment can be classified into different types based on a range of different causes.
So named by pre-Keynesian, classical economists. This type of unemployment is due to wages rates in labour market being above the market clearing wage.
Policy here would be to curb the power of trade unions engaging in restrictive practices and reduce real wages. Reductions in unemployment benefits may also be sought as a method to encourage people to accept lower wages and get the market to clear.
The Classical and Neo classical view point was that involuntary unemployment was impossible as fully flexible markets would clear themselves and the only remaining unemployment would be voluntary.
Frictional unemployment is unemployment caused by those who are between jobs or have recently joined the labour force.
As the problem is not the shortage of jobs the appropriate policy is to keep those out of work informed about employment opportunities eg FAS. By this means frictional unemployment can be kept to a minimum.
It could be argued that this type of unemployment is in fact due to wages and prices being too high for the existing level of aggregate monetary demand.
Keynesian or Demand Deficient diagram.
The Keynesian policy response was to stimulate the AD level by increasing levels of injections into the economy.
Keynes argued that government spending should be increased until the economy reaches full employment and all the spare capacity in the economy becomes utilized.
There are 3 other types of unemployment.
This is a "catch all" category and includes people who are unemployable because of physical or mental disability. It also includes "workshy". If a worker is unemployed for a long time it may mean that the worker is now unemployable.
Two measures of Irish unemployment. LR = Live Register
QNHS = Quarterly National Household survey
The live register is based on all those signing on, whereas the labour force surveys is based on those seeking employment
The QNHS allows those to classify their own employment status.
The LR figures are published by the CSO on the last Friday of every month. It is not really designed to measure unemployment as it includes part time workers and seasonal/ casual workers entitled to JA or JB.
On the LR the standardised Unemployment rate (SUR) in April 2013 was 14.0% or 426,900 claimants unchanged from the March 2013 rate.