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Definition of Unemployment:

Unemployment occurs when someone who wants to work is unable to find a job and has to live on subsistence. According to the US Bureau of Labor Statistics, it is people who don’t have a job, currently available for work and have been actively looking for work in the past four weeks. It describes the economic health of the country, where a high rate is considered a sign of distress and a low rate is an indicator of an overheated economy. 

When there are unemployed workers, it means the contribution to economic production is less. When there’s no subsequent decline in the need for basic consumption, this becomes a cause of serious concern. Usually unemployment is measured as unemployment rate, where the number of unemployed people is divided by the total number in the labor force. This labor force does not include people who would like to work but is not looking for a job, college students, retired people etc. However, they include temporarily laid-off employees, or people waiting to be called back to work. 

Types of Unemployment


  • Frictional unemployment: This includes people who voluntarily shift their jobs or fresh graduates looking for a job. This is a fairly common phenomenon and does not affect the economy much.
  • Cyclical unemployment: It measures the number of unemployed people during economic ups and downs. Measuring and keeping a note of cyclical unemployment will help governments and institutions employ methods to alleviate unemployment.
  • Structural unemployment: This refers to structural changes in the way people way, mostly by use of technology. For instance, computers took care of a lot of manual work, leaving people unemployed for a long time. To curb structural unemployment, you need to invest time and resources into retraining employees. 
  • Institutional unemployment: When there are institutional benefits and incentives such high minimum wages, social benefits programs, or restrictive licensing laws, discriminatory hiring, or high rates of unionization, it can lead to institutional unemployment.

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