Unemployment: Why is there always unemployment and how can the unemployment rate be calculated?

Unemployment is the socio-economic phenomenon when a part of human resources (economically active population) is not occupied in producing goods and services. Unemployed people along with occupied ones form country’s labor force. In economic life unemployment is labor force supply exceeding the demand for it.

Many economic schools have made analysis of unemployment reasons. Different explanations to this social phenomenon were given by T.R. Malthus (unemployment is caused by demographic reasons when rates of population growth exceed those of production growth), K.H. Marx (technical progress causes growth of production facilities’ mass and cost. As a result the labor demand falls behind the capital accumulation rates, leading to unemployment), J.M. Keynes (fall of consumer demand reduces interest to investing capital, and investment demand falls. When investing motivation falls the production doesn’t grow and can be winded down resulting in unemployment), A.C. Pigou (imperfect competition at labor-market leads to labor overpricing. Employer is more likely to pay high salary to skilled specialist able to increase output value, discharging several ineffective employees).

Also, in conditions of market economy labor-market is permanently mobile. Some companies reduce staff, others increase it. People resign or leave jobs for other reasons (e.g. women take maternity leave). New employees come instead, like educational institutions graduates.

Labor-market mobility influences unemployment rate. In market conditions, people look for a worthy job, and not always accept the first coming job offer. This type of idleness can reach up to 16% of general unemployment level.

Some companies fail to adapt for real demand on production, its assortment, quality, and price; and in order to pay out debts and invest into production, the owners are forced to remove the unnecessary staff.

Price liberalization leads to its uncontrolled rise. However, soon price hikes result in rising costs of raw materials, energy, and eventually in the non-payments crisis, which inevitably increases unemployment rate.

Major indicator of socio-demographic safety is the unemployment level (L), which is the correlation of unemployed people (U) to all economically active population (E): L=U/E.

Presently, there are two basic methods of unemployment measuring: on the basis of proper services data about the registered unemployed people; and national selective inspections of households. Monthly selective inspections giving information about level, dynamics, structure, duration and other parameters of unemployment, prevail in the USA, Canada, Japan, Australia and most Scandinavian countries. Most European countries rely on information about the registered unemployed people.

Both methods have their advantages and disadvantages. The selective population survey allows to expose practically all categories of unemployed people, including those missed by employment services, but for researches realization the proper technological providing, skilled staff and large financial expenses are required, besides their statistical error might be misinforming. Advantage of unemployment calculation on the basis of registers’ information is that it doesn’t require considerable financial expenses, and calculation has continuous character, that allows to easily separate season changes of employment, unemployment and other labor-market parameters from long-duration tendencies of their change; but frequently registers don’t reflect the actual situation in the country.

To sum up, unemployment is a macroeconomic problem, directly and strongly affecting each citizen. The loss of job for majority of people means the decline of life standard and inflicts a serious psychological trauma.

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