Understanding Unemployment: Causes, Types, and Solutions

Causes of Unemployment

The unemployed population comprises people who are able to work and seek employment but cannot find it.

Neoclassical Theory

According to neoclassical theory, if the labor market operated freely and wages were flexible, unemployment would not persist. Any excess supply of workers would cause the market mechanism to adjust by lowering wages. Lowering wages would encourage companies to hire more workers, and unemployment would disappear. However, in reality, wage rigidity prevents the adjustment of supply and demand. This is often attributed to the actions of unions and government intervention. Unions strive to improve working conditions for workers, and the existence of a minimum wage, set by the state to ensure that people can live in dignity, can also contribute. When the state sets a minimum wage above that determined by supply and demand, unemployment occurs.

Keynesian Theory

According to Keynesian theory, the reason for unemployment lies in the market for goods and services. The number of workers needed is determined by the volume of production of goods and services that companies expect to sell in the market. Higher demand for goods and services leads to increased production and more jobs. However, when there is insufficient demand, companies reduce their level of activity, creating unemployment.

Other Factors

• Mismatches between demand and supply of work: Businesses look for workers with specific qualifications that are not met. There are workers with other professional qualifications that are not in market demand. This results in an oversupply of certain professions and a shortage of others.
• Poor distribution of employment: Multiple job holders or those working overtime prevent others from entering the labor market.

Types of Unemployment

• Transient: Occurs when people change jobs and are temporarily unemployed, when seeking a first job after graduation, or when they prefer to take time off work to improve vocational training or care for children.
• Seasonal: Generated at certain times of the year.
• Cyclical: In times of economic crisis, production declines, and people lose their jobs until the economy recovers.
• Structural: Caused by qualification mismatches between the jobs offered and those sought.

Employment Policies and Evolution of the Labor Market

Actions on Labor Supply

• Reducing the workforce: Through early retirement to allow older people to leave their jobs to others or extending compulsory education and delaying working age, so many young people continue studying instead of looking for work.
• Distribution of existing employment: By reducing working hours or eliminating overtime and moonlighting. Increased part-time and temporary jobs, providing access to the world of work.

Measures on the Demand for Labor

• Boosting productive activity: To facilitate job creation by companies and the public sector, e.g., public investments creating new jobs.
• Aid for the creation and development of small and medium enterprises: Tax relief and other incentives for businesses that create jobs.

Measures Relating to Information and Training

• Improving the training of workers: According to labor market requirements and access to information on employment.
• Promoting effective intermediary services: Between supply and demand for labor, i.e., contact services to match the person seeking employment with the company seeking the best employee for their needs.
• Facilitating professional training: To workers, especially those with difficulties finding their first job or re-entering the job market.