Jobless Rate Unveiled (Root Causes, Consequences, Potential Remedies)

Unemployment and underemployment are significant issues that impact individuals, society, businesses, and the economy in various ways.

In the labour market, hidden unemployment and underemployment are inefficiencies that reduce productivity, waste human resources, lower income and quality of life, increase social inequality and unrest, and weaken economic growth and future capital formation.

For individuals, hidden unemployment means they appear employed but their marginal productivity is zero, leading to low wages, job dissatisfaction, and poor quality of life due to lack of meaningful employment and stagnant income.

For society, these forms of unemployment widen income inequality and social injustice, fostering social conflict and unrest, and weakening social cohesion.

For businesses, hidden unemployment and underemployment translate to inefficient use of labor resources, low productivity, and reduced competitiveness since the output per worker is minimized and human capital is underutilized.

For the economy, these issues cause loss of productivity and output, lower aggregate capital formation, and ultimately slower economic growth and development. They also contribute to structural problems like labor market inefficiencies and can exacerbate recessions through reduced aggregate demand.

High unemployment often disproportionately affects disadvantaged groups, such as recent graduates or single parents. Seasonal unemployment is high during regular seasons and falls during peak seasons, with entrepreneurs recruiting more workers during peak seasons to generate more revenue and profits. In times of high unemployment, fruit pickers are heavily employed during the summer.

Underemployment describes people who are working but aren't employed at their full capability, either by wanting and being available to work more hours or being in jobs that don't utilize their skills and experience. Seasonal unemployment is like cyclical unemployment, but the problem stems from seasonal factors, such as holidays.

Cyclical unemployment occurs during the business cycle, with periods of high unemployment when demand is low and periods of low unemployment when demand is high. Structural unemployment arises because unemployed workers do not have skills or have skills but don't match the demand, often due to changes in the economic structure such as technology.

Economists classify the unemployed into four groups: structural unemployment, frictional unemployment, cyclical unemployment, and seasonal unemployment. Frictional unemployment arises from the natural churn within a healthy labor market, occurring when there's a temporary gap between jobs for individuals actively seeking work.

Governments implement various policies to try and steer the economy towards full employment while maintaining price stability, such as stimulating demand, improving job skills, and promoting labor market flexibility. With fewer people employed and paying taxes, government revenue shrinks, limiting the government's ability to invest in public services like infrastructure and education.

High unemployment can make it challenging for businesses to find workers with the specific skills they need, especially in rapidly evolving industries. It can also lead to financial strain for individuals, making it difficult to afford basic necessities like housing, food, and healthcare.

The stress of unemployment can lead to anxiety, depression, and even physical health problems. Fewer employed people mean less disposable income circulating in the economy, potentially hurting businesses across various sectors.

A significant segment of the workforce experiences hidden unemployment or underemployment, painting a more nuanced picture of labor market conditions. The demand for jobs in specific industries is more seasonal than others, with tourism and recreation, construction, agriculture, and retail being examples.

Calculating the unemployment rate involves dividing the number of unemployed by the total labor force. High unemployment can lead to deflation or inflation, discouraging businesses from investing and hiring or causing prices to rise. Unemployment can strain social programs like unemployment benefits and welfare, potentially impacting the quality of social safety nets.

The unemployment rate decreases during economic expansion and increases during recessions, but it is never zero, even when the economy is prosperous. Unemployment can lead to social unrest, increasing crime rates and social tensions. Hidden unemployment includes discouraged workers who have given up their job search after facing prolonged unemployment and individuals not actively seeking work due to various personal circumstances.

Addressing these issues requires integrated policies to improve job quality, enhance skills, and promote better labor market matching. Understanding and addressing hidden unemployment and underemployment is crucial for creating a more equitable and productive society.

Finance plays a key role in mitigating the impacts of high unemployment and underemployment, as adequate funding for education-and-self-development programs can equip workers with the necessary skills to meet the demands of businesses and the economy.

Businesses can also invest in education and training programs for their employees, helping to alleviate underemployment and foster greater productivity and competitiveness within the company.