The type of unemployment that we are interested in is known as
So what does it mean for a unit of
labor, let's say a worker, to be involuntarily unemployed?
now on I mean involuntary unemployment unless I state otherwise.
OK, here's the usual definition:
A worker is said to be unemployed if she/he does not have a job but wants a job paying the
The market wage is simply the wage
currently being paid workers.
It is not the worker's reservation
wage (the minimum wage that he would accept).
Nor is it the wage
that he was being
when he was last
(The unemployment rate is the percentage of those wanting
jobs paying the market wage who don't have
The formula for calculating it is:
U = (QLS – QLE)/QLS x 100%
Here QLS = quantity of labor supplied, QLE = quantity of labor employed.
Note, though the QLD =
QLS, the QLE will be < QLD.)
Note that this definition can lead to some confusion
about whether or not a jobless person is
When asked his availability for work, a worker may very well 1) not know the market
wage or 2) be thinking
about the wage he was being paid.
For example, say a commercial painter was
laid off shortly after the U.S. economy went into recession.
Say she was making $16 an hour when she
was laid off.
Let's also say that due to the recession, the market wage for painters with this person's
experience and skill set fell, to $14.50 an hour.
Well, she may be ready to work for $16 an hour, but
unwilling to work for $14.50 (at least for a while).
She figures she should be paid at least what she was
Though we can all
appreciate her thinking, the market wage for commercial painters is now
And if she's not willing to take a job paying $14.50 an hour, she is not involuntarily unemployed.
behind the monetarist claim that
More on that
All right, let's note that even when the labor market is in equilibrium there will be some
This unemployment is known as
So the unemployment rate
when the labor market is in equilibrium is called the natural rate of unemployment.
Why is there
unemployment when there is exactly one
job for everyone who wants a job?
The answer is this:
economy is a dynamic place.
the time people are waking up and saying, "It's time I went out and got
That is, people who were not in the labor market (did not want a job, like my mom when I was in
5th grade) decide to enter it (wanted a job, like my mom the next year, when I was in 6th grade).
people are always being laid off
but still want a job; or are quitting jobs to look for other jobs.
people are always becoming unemployed.
And even if there is an available job for each of these