Unemployment - measurement, different types and the problems caused by unemployment

• The total labor force is everyone who is working or willing to work between 16 and 65. The total labor force increases as the wage increases. It does not include students, housewives and others who have another source of income

• There are two ways of measuring the level of unemployment
• Counting all those who claim unemployment benefit from the government, as in many EU countries or from private insurance as in USA
• Alternatively, making a statistical count of those who are part of the labor force but not working
• The first may be inaccurate as many in USA don’t have unemployment insurance and in the EU some register as unemployed to receive the benefits while working
• The second has all the problems of a statistical count but may still be more accurate as it may take into account the parallel market
• Finland uses both measures; the Ministry of Labor counts those claiming unemployment benefit and the statistics of the counts by a statistical survey
• Unemployment in Finland is higher when measured by the Ministry of Labor than when counted by the statistics office by several thousands

Unemployment, why it is a problem

• It is inefficient because scarce resources of labor are not being used
• Labor that could be producing goods or services to meet our infinite wants is idle, and so AD is lower than necessary
• Keynesian theory points out than unemployment causes negative externalities, crime, ill-health etc.
• Other social problems at unemployment may include depression and other problems in society (e.g. poverty)
• N.B. The social problems are only a result of unemployment if the unemployed are involuntarily unemployed. If they are unemployed simply because they are lazy, then the crime, ill-health etc. is not a result of them being unemployed but of their laziness and unwillingness to work and play a part in society

Frictional unemployment

• This is good efficient unemployment
• This is when people are between jobs, having left one and are searching for another
• The demand for goods and services changes constantly as new products are launched onto the market, and old ones disappear. This changes the demand for employment as well
• Frictional unemployment accounts for about 3% of the labor force, so it is almost impossible for unemployment to fall below 3%
• Voluntary unemployment is when somebody could find a job but has decided to remain unemployment anyway. In Finland and the EU they are free riders on the social security (unemployment benefit) schemes. Monetarists believe they make up the majority of the unemployed
• Involuntary unemployment is when somebody couldn’t find a job even if they really tried. In Finland and the EU they rely on the social security (unemployment benefit) schemes. Keynesians believe they make up the majority of the unemployed

Definitions of Unemployment

• Seasonal unemployment is when someone is unemployed during a particular season of the year, e.g. a ski instructor in Lapland in summer or owner of a restaurant in the archipelago in winter
• Structural unemployment is when someone is unemployed because their skills are no longer needed, e.g. paper-worker in Kemijärvi or one of Saab’s employees
• Cyclical unemployment is the unemployment that increases during recession as AD shifts to they left, and (the cyclical unemployment) falls again during the recovery, e.g. construction workers, electricians and plumbers often fall into this category
• Real wage or classical unemployment is unemployment that occurs because the wage is above the equilibrium (because of laws controlling minimum wages or trade unions). Monetarists view seasonal and structural unemployment as this (i.e. people are lazy and free riders)