How Clear Is The Distinction Between Voluntary


How Clear Is The Distinction Between Voluntary And Involuntary Unemployment?? Essay, Research Paper

How clear is the distinction between voluntary and involuntary unemployment??

What might lead to an decrease in voluntary unemployment?Economists divide unemployment into five

broad categories:? frictional

unemployment; structural unemployment; technological unemployment; classical

unemployment; and demand deficient unemployment.? An examination of each of these categories will show that some

are more likely than others to be made up of workers who could work and do

consider themselves part of the labour force, but nevertheless choose, for

whatever reason, to remain unemployed.?

Others will be unlikely to contain the voluntarily unemployed, but will

be made up of those who are unable to find work.? Having examined these categories, we will proceed to draw up two

models of unemployment which show clearly the distinction between voluntary and

involuntary unemployment, and then go on to consider how voluntary unemployment

might be reduced.Frictional employment is caused by short

run changes in the economy, which result in workers moving from one job to

another.? This transition will generally

take time.? If someone is made redundant

it may be some time before they find another job which is vacant, and it is

quite likely that they will not take the first job they come across but will

search for one which best suits their skills and preferences.? It follows that the level of frictional

unemployment in an economy will be heavily affected by the availability of

information regarding the labour market.?

If it is hard to find out about vacancies, it will take a long time for

workers to find a position which is suited to them.? It is also argued that unemployment benefits may have an effect

on frictional unemployment levels, because if benefits are relatively high then

people will feel able to stay out of work for longer and spend more time

searching for an appropriate job.Structural employment is caused by more

long run changes in the economy.? As the

structure of an economy changes, certain workers will find that their skills

are no longer in demand, or that the region in which they live has a lack of

employment opportunities.? An example

might be the British ship building industry, which has contracted to the extent

that workers with skills appropriate to this industry either cannot find jobs

at all or must move around the country to find them.? Structural unemployment will be affected by the cost and

availability of retraining, which would allow people to acquire skills which

will be useful to them in filling the vacancies which are available.? The ease of relocation within the country

will also have an effect on structural employment, since if people are more

free to move around the country they will have more chance of finding a

position which requires their particular skills.Classical employment is the result of the

real wage rate being maintained at an unrealistically high level.? This might occur because a Trade Union has

insisted on a certain wage, even though this wage is not really realistic.? In this case, firms will be inclined to

employ less people because the marginal cost of labour will be too high.? Further, it will become cheaper in real

terms to switch to more capital intensive methods of production, requiring less

labour.Demand deficient, or Keynesian,

unemployment is caused by a lack of demand.?

Keynes advanced the idea, in opposition to the classical model of the

economy, that unemployment had more to do with the goods market than the labour

market.? Low demand in the goods market

would mean low output, and therefore low demand for labour.? Keynes? theory can be shown in two graphs,

the left hand graph showing the state of the labour market and the right the

state of the goods market. Because the aggregate demand schedule AD is

so low, output is only Y2, rather than its long run

At real wage (W/P), unemployment stand at N2-N1.LS=Labour Supply LF=Labour force LD=Labour demand feasible real wage= the limit to the real wage

which the economy can provide. target wage= aspirations of workers. equilibrium position at Y1.? Employment is therefore equal to only

N2.? In this case, the real wage is

almost irrelevant – it could be anything between W1 and W2.From these brief descriptions, we can say

the following about voluntary and involuntary employment.? Friction unemployment will be mostly

involuntary, especially if benefits are low.?

However, it is likely that some people will voluntarily choose to enter

and remain in frictional employment as they search for a better job.? This will be especially the case if benefits

are high, making it less costly to be more demanding in their search.? Structural unemployment, at first glance,

seems likely to be made up exclusively of involuntary unemployment, since

workers cannot control changes in the structure of the economy.? However, some may choose not to take another

job because they feel it is beneath them, or because they do not want to change

what they do.? In this case, the distinction

between voluntary and involuntary employment is blurred somewhat.? Classical unemployment is invariably

involuntary, with employed workers preventing the unemployed from getting jobs

by keeping the real wage artificially high.?

However, as will be shown, the classical model does also include

voluntary unemployment.? Keynesian unemployment

is also involuntary, although again, the model does also contain voluntary

unemployment, as can be seen on the graphs above.One model of the rate of unemployment is

the classical model, which gives the natural rate of unemployment (NRU).? The NRU model can be illustrated thus: ????

This model assumes a competitive labour

market and a competitive goods market, and implies that a large amount of

unemployment is voluntary.? This

implication can be seen from the fact that the total labour force curve and the

labour supply curve converge as real wages rise.? This shows that at a higher real wage more of the labour force

would be prepared to work.? Presumably,

then, they are choosing not to work at the lower real wage levels rather than

being prevented from working.The main alternative to this model is the

non-accelerating inflation rate of unemployment (NAIRU).? This model challenges the classical

assumption that labour markets are perfectly competitive, and instead theorises

that the real wage is determined by negotiation between workers and firms.? The NAIRU can be graphically illustrated

thus:Since high unemployment leads to low demand

in the economy, and therefore low demand for labour, it follows that workers

will aspire to a lower wage when unemployment is high, and a higher wage when

unemployment is low.? At a certain level

of unemployment, the aspirations of workers will be equal to the amount which

firms are prepared to pay, and this level is the NAIRU.? The NAIRU model puts more emphasis on

involuntary unemployment than does the NRU model, because it assumes that there

are people who would work if those who were already working were not keeping

the wage too high to make it profitable for firms to employ more people.This has shown that the distinction between

voluntary and involuntary unemployment is often blurred.? We turn now to examine ways in which

voluntary unemployment might be reduced.?

One answer would be that unemployment benefits should be cut.? This would lead to the frictionally

unemployed having more incentive to cut their search time and to enter

employment as soon as possible.? It

might also lead to the structurally unemployed being more motivated to enter a

job which they would not usually.? For

example, in areas where heavy industry has all but collapsed, workers are often

not prepared to enter light industry, for social reasons or reasons of

preference.? However, lower unemployment

benefits might force them to do this.?

However, this course of action would naturally have very negative

effects on those who were unemployed involuntarily.Another answer might be to make more

training and retraining available at a low cost.? Some people may have weighed up the cost of retraining against

the benefits of re-entering employment and decided that they would rather

remain unemployed.? Perhaps more

training and retraining schemes would overcome this difficulty.? This sort of system has operated with

success in Sweden, where over 2 per cent of the labour force engage in some

sort of retraining each year.As well as simply reducing benefits,

governments could try to make the transition from benefits to paid work more

attractive.? The British Government, for

example, has introduced the ?New Deal?, which hopes to make it easier for the

long-term unemployed to find work.? The

?carrot? of the New Deal is balanced by its ?stick?.? Those who refuse to participate and do not actively seek employment

are penalised through the benefits system.Again, as a complementary move to a

reduction in benefits it would seem sensible to make sure that those who do

find work actually gain from their efforts.?

This means not necessarily ending all benefits as soon as someone enters

work, which has been a cause of voluntary unemployment in the past.? People have found that entering work will

cost them their benefits, and judge that the exchange, which will often give them

only a little more money after tax and NI contributions, is not worth

making.? Schemes which provide

continuing support for the newly employed might help to encourage people into


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