Theories Of Unemployment Essay

1350 words - 5 pages

Unemployment is known to be a certain number of the workforce, is temporally out of a job or an activity, which provides a human being the means of giving basic necessities like housing, finance etc.

During the 2009 recession, the unemployment rate in the entire globe had reach to new highs as stock markets hit a nosedive in the economy. The most effected areas, which resulted with huge downturn, is the European Union (Spain, Austria, Netherlands, Greece etc). Here are the different theories of unemployment and the theory, which matches the current unemployment scenario of the European Union (Active, 2014) (Andreou, 2014).

Theories of unemployment

Many Economists have devised various theories concerning unemployment. These are the theories, which are normally used in various studies of unemployment- Classical unemployment, cyclical or Keynesian unemployment, structural unemployment, Marxian unemployment and frictional unemployment(Krugman and Wells, 2006).

Classical unemployment- unemployment occurs for various reasons. In this case, they are three norms that describe the theory of classical unemployment: the wages becomes higher than the production outputs the unemployment can be decreased if the independent cash wages condensed into more plunging normal wage flexibility (voluntary unemployment) (Davidson and Matusz, 2010), no demand by the consumer in the market. They have been by many noble economy laureates that the factor of government raising unemployment issues in certain countries. For example, the government advances law, which increases minimum wages and increases the cost of the laborers with few abilities above the market requirement, raises the unemployment where they accept the rate but cannot be employed, as an organization can’t afford because the wage is higher than the value of the employee. There the no firing laws indicated by the government to the companies but the companies won’t be able to hire any employee, as it will turn out expensive for an organization. These criteria’s explains the creation of normal unemployment or classical (Filc and Köhler, 1999).

Cyclical or Keynesian unemployment- this theory occurs when there is not enough demand in the market or economy, which will in turn not generate jobs sufficient jobs to eradicate unemployment. This means less demand creates less income in the organizations, which will reduce the production and in result create huge unemployment. The title was created to explain the recurrent shifts in the business rotation, but sometimes the unemployment can be throughout many years, which included the great depression (Diamond, 2013).

This theory states that the number of employees is higher than the number of jobs vacant. Sometimes even if the jobs are occupied, there will always be some employee still remaining jobless. This could very well be on the economy recovering, but still some are unemployed like the situation after 2008-2009 financial...

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