Distinguish between equilibrium and cyclic unemployment, and outline the private and social costs associated with each type

Résumé du document

Unemployment is seen as a plague in many countries. Plus, we are often told about how to tackle it and given some figures spelling the number of unemployed people. But what does this really mean? Governments do not tell much about unemployment's features and the real consequences it entails. Nevertheless, comprehending the meaning of these data is very important in order to avoid any misunderstanding. From then on, we first need to clarify the different types of unemployment. Secondly, whichever is the type of unemployment we face, we should try to look at the costs it implies to become aware of the indicator's complexity. Thus, in a first part I will distinguish between two types of unemployment: the equilibrium and the cyclical one. In my second part I will focus on the private and social costs related to each type.

Extraits

[...] Thus, the cyclical unemployment is the difference between A and E. Once wages and prices have adjusted, the new long-run equilibrium will be restored at B (lower wages and labour Now, what could these two types of unemployment imply in terms of costs? To look at the private and the social costs of unemployment accurately, we need to analyse them separately, whether they are associated to voluntary or involuntary unemployment. Private costs could be defined as every cost engaging the unemployed themselves.[7] For people who have chosen to remain unemployed, the cost of being unemployed is far less than the one for people who are involuntarily unemployed since it is an individual choice. [...]

[...] Distinguish between equilibrium and cyclical unemployment, and outline the private and social costs associated with each type Unemployment is seen as a plague in many countries. Plus, we are often told about how to tackle it and given some figures spelling the number of unemployed people. But what does this really mean? Governments do not tell much about unemployment's features and the real consequences it entails. Nevertheless, comprehending the meaning of these data is very important in order to avoid any misunderstanding. [...]

[...] Consequently, when the economy expands rapidly, the cyclical unemployment disappears; conversely, when the economy faces a contraction, it increases. For example, a waiter can be fired because there is not enough activity in the restaurants he is working in, but he can as well be re-hired a few months later when the activity speeds up again. Thus, a fall in aggregate demand entails a decrease in output and employment, until wages and prices adjust in the long run. We can illustrate the situation by a graph. [...]

[...] This can be due to a skill mismatch, an excess in labour supply, or some structural or geographical impediments among others. These workers have to spend money on searching as well. In any case, they are worse off. Furthermore, it implies many psychological costs. A worker remaining unemployed for a long period could lose self-esteem, stress or even get depressed. It can above all have consequences on his prospect to find another job, since the next employer could have legitimate doubts on his capacity to fit in the firm. Let us now study the social costs of unemployment. [...]

[...] That is what characterises the distinction between equilibrium and cyclical unemployment: the former is voluntary, and the second is involuntary. In fact, equilibrium -or natural- unemployment occurs when a worker desires to be employed, but is unwilling to work at the current wage the firm can offer.[1] This is the lowest unemployment rate. It is also called NAIRU (non-accelerating-inflation rate of unemployment), and shows the level of unemployment for which inflation is stable, which is by the way another condition to be met.[2] Furthermore, equilibrium unemployment rests on other aspects. [...]