Way is there unemployment?

Table of Contents
A. Introduction 2

B. Unemployment caused by job search 2

B.1 Frictional unemployment 2

B.2 Sectoral shifts 3

B.3 Unemployment insurance 4

C. Unemployment caused by wage rigidity 5

C.1 Minimum wage 6

C.2 Union labors 6

C.3 Efficiency wages 7

D. Conclusion 9

References 10

Way is there unemployment?

Introduction

Unemployment is a major macroeconomic problem. It occurs when people are willing to work, but they do not have a job. It is measured with the unemployment rate, which is the percentage of people with labor force, who are unemployed.

There is always some unemployment in an economy, which is called natural rate of unemployment. This is a rate towards which the economy gravitates in the long run, considering all the labor market imperfections that prevent people from immediately finding a job[1].

There are two main reasons why unemployment occurs. One is job search, and the other one is wage rigidity.

Unemployment caused by job search

The main problem of job search is that it takes time, to find a new job. There is an economic term for the unemployment caused by the time factor and it’s called frictional unemployment.

B.1 Frictional unemployment

Frictional unemployment occurs for different reasons. One of the main reasons is that workers have different abilities & preferences and jobs have different attributes & skill requirements. One might be highly qualified in a field, but if these skills are not required, it could be very hard to find a job.

Another reason is the geographic mobility of workers, which is not instantaneous. People might find a perfect job that matches their preferences, but if it is in another city, they will probably not move to another city.

Also to mention is the fact that the flow of information about vacancies and job candidates is imperfect. For example there might be a job that fits a person, but the