Unemployment is one of the most widely used barometers to check a current economic status. Therefore, it is natural that unemployment is the main topic of macroeconomics.
In macroeconomics, there are several types of unemployment:
- Frictional
- People are voluntarily between jobs or leaving them (reflecting labor market freedom and vitality)
- Seasonal
- Due to the natural annual cycle of the seasons.
- Cyclical
- Driven by the business cycle of booms and recessions
- Structural
- Certain types of jobs become obsolete due to the technological, social, or political changes.
Different economic schools differ on how to approach the problem.
- The classical school
- insists that unemployment is a self-correcting problem. The labor market is just like any other market; supply, demand, and price (wages) will automatically handle the situation.
- In this view, unemployment is a surplus in the labor market.
- The Keynesian school
- thinks that the labor market is not a free-market in reality.
- To achieve full employment, government intervention is required.
- Basic economic activities, such as consumption and investment, might not enough to keep the unemployment rate stable. In this case, government Spending can be a key player in solving the problem.
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