Involuntary Unemployment

Picture yourself lounging lazily and happily on your couch...doing whatever you do (video games? Netflix? Knitting?). You just quit your job and you’re not looking for another one. You’re voluntarily unemployed. Good riddance to the working man’s life.

But eventually...you've gotta pay for the bills that you know are coming in. You start looking for a job. Congratulations...you’re not involuntarily unemployed.

Involuntary unemployment is when you’re out of a job, but you want one. On a mass scale, involuntary unemployment means there are major issues with the economy. People want jobs, and are capable of providing some kind of value, but they can’t get a job. In economic terms, it means there’s a surplus of labor at the current wage.

What’s that look like on a labor supply and demand graph? Well...it’s not really on there. That graph assumes everyone who’s not working isn’t working because it’s a choice they made, i.e. they weighed the costs and benefits and decided it wasn’t worth it.

There are lots of reasons why involuntary unemployment happens in economies, but one thing’s for sure: it shows that the invisible hand that’s supposed to keep surpluses and shortages in check...is out of whack.

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Finance: What is the Unemployment Rate?15 Views

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finance a la shmoop what is the unemployment rate so negative like

00:09

shouldn't it be the employment rate at least that way we'd have a bigger number

00:13

and bigger is better in the u.s. right well anyway the unemployment rate in

00:16

this country is tracked carefully because it's one of the Canaries in the

00:20

mine shaft giving us an early heads-up on the direction of the economy well [canary hopping in cage in mineshaft]

00:25

jobs are generally highly volatile in a given range and the government copiously

00:29

inspects this data as it affects so many other things principally the costs of

00:34

renting money has set out by the Fed because high employment stimulates

00:38

inflation and low does the opposite well the government's gonna ask is the

00:42

unemployment rate shrinking too fast I eat everyone's getting jobs well if so [government officials in conference]

00:47

then beware inflation is coming which historically has motivated the Fed to

00:52

raise interest rates in response or constrict the supply of cash out there

00:57

and the opposite is true as well one of the big cocktail party conflicts and if

01:01

you find yourself at a cocktail party debating this notion make like the

01:04

Jordan Peele movie and get out but if you can't and you must debate well there

01:09

is a quote natural rate unquote of unemployment of around five or six

01:13

percent yeah zero percent unemployment ain't never

01:16

gonna happen generally the higher the unemployment rate the worse shape the

01:20

economy is in but remember the unemployment rate doesn't tell the whole

01:24

story the government can help create a bunch of temporary or low-paying jobs

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too cosmetically raise the employment rate in the short term like ahead of an [happy government officials in conference]

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election but the quality of those jobs is probably not great like think temp

01:36

workers at the DMV well after a while of longer term unemployment some people [long line at the DMV]

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will just give up hunting for jobs and if they don't even go on indeed or

01:45

Glassdoor looking for work so they're kind of permanently in the unemployment

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numbers so the unemployment rate might seem to be a bit less dire in that case [unemployed people holding up cardboard signs]

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but in fact well there might still be a lot of people who needed jobs out there

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we don't know we're just looking for some numbers to help us direct

01:59

understanding of where the economy has gone and help us then tweak things so

02:03

interest rates are optimized at the inflation numbers that we want to hit

02:07

got it not everyone is qualified to stick that thing on the back of your

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license plate that shows you red yeah a whole lot of government workers I [hand adds stickers on back of license place]

02:14

guess do that now bad times

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