Macroeconomics: Theory and Policy

21

Unemployment

After studying this topic, you should be able to understand

• The labour force consists of both the employed and the unemployed.
• The unemployment pool is formed by the unemployed persons at any point of time.
• The natural rate of unemployment is the average rate of unemployment around which any economy fluctuates in the long run.
• Frictional unemployment arises due to the time gap it takes for the workers to search for a job that best suits their individual skills and tastes, when the economy is at full employment.
• Wait unemployment is caused by wage rigidity above the equilibrium level of employment.
• Unemployment results in a loss in production and also leads to an undesirable effect on the distribution of income.
• The Phillips’ ...