Unemployment is the state in which someone is without work, available to work, and is currently seeking work. The unemployment rate is the number of people unemployed divided by the total labor force (everyone working plus everyone seeking work but unable or unwilling to take jobs). There are two types of disequilibrium unemployment: real-wage/Classical and cyclical/demand-deficient/Keynesian. The graph below shows equilibrium unemployment of which there are three types: frictional, seasonal and structural. Frictional unemployment occurs when a worker moves from one job to another, called job searching. Seasonal unemployment occurs because production in some sectors varies over the year, like farmers in winter or ski instructors in summer. Structural unemployment is caused by a mismatch (spatial or skill-based) between jobs offered by employers and potential workers.
In theory, the labor market may be in equilibrium but there may still be unemployment. When the labor market is in equilibrium, the number of job vacancies in the economy is the same as the number of people looking for work. Jobs exist, but people are either unwilling or unable to take jobs that are available. This graph shows the labor force (LF) curve in addition to the aggregate demand for labor (ADL) and aggregate supply for labor (ASL) curves. The ASL shows the number of people willing and able to work at every given wage rate. The ADL shows the demand of firms for all types of workers at different wage rates. Here, the labor force includes the aggregate supply for labor plus everyone unemployed and looking for work, and thus at we, qe, qe to q1 unemployment exists.
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