Economists sort joblessness into kinds, and each kind needs a different cure
In 2018 about 172 million people around the world, some 5 percent of the reported workforce, were looking for work without finding it. That single figure hides very different situations. Someone between jobs by choice, a factory worker laid off in a slump and a miner whose skills no industry wants are all counted alike.
Officially, a person is unemployed if they have no paid work or self-employment but are available for it, and the rate is their share of the labour force. Counting is harder than it sounds. The United States relies on surveys, while some European countries count registered jobseekers, so some argue that ratios of employment to population tell a clearer story.
Frictional unemployment covers people searching for a better fit, and much of it is voluntary. Cyclical, or Keynesian, unemployment arises when demand across the whole economy sags: fewer goods are needed, fewer workers are hired, and wages are sticky rather than falling, so even if every vacancy were filled some people would remain jobless. It usually comes and goes with the business cycle but can persist, as in the Great Depression. Keynesians propose deficit spending or looser money to revive demand. Structural unemployment is a mismatch between the skills people have and those employers need, and stimulus alone will not fix it; training programmes are more promising.
Classical unemployment, in theory, occurs when wages sit above the level that would clear the market. Some economists argue that minimum wages and limits on layoffs therefore raise joblessness. Others reply that this oversimplifies: wages below a livable level push people out of the labour force, and higher pay boosts spending, which in turn creates demand for workers.
Policymakers also watch for an inflation barrier. The so-called natural rate, or NAIRU, is the unemployment level at which inflation neither speeds up nor slows down. The trouble is that nobody knows exactly where it lies, and it shifts over time. Long slumps can cause lasting damage too. When people stay out of work for years, their skills and job-hunting abilities go rusty, turning cyclical unemployment into structural unemployment, a persistence economists call hysteresis. The flip side is hopeful: sustained strong demand may shrink structural unemployment.
Source: Unemployment
