Unemployment Analysis: Types, Causes, and Economic Theories

Unemployment affects those in the active population who satisfy the conditions of age, physical and mental ability to perform paid work, seek employment, and do not find it. In Spain, there are reports from diverse backgrounds on the labor market. In the first place, the Labor Force Survey (EPA), prepared by the National Institute of Statistics (INE) with a rigorous methodology, uses concepts that are homogenized in Europe. It also provides other useful administrative information.

Main Types of Unemployment

• Cyclical unemployment: It takes place when workers, and in general the productive factors, remain idle because the economy during certain periods throughout the cycle is insufficient to provide employment for all resources.
• Seasonal unemployment: This is caused by changes in labor demand at different times of the year. Thus, in late summer, many people hired to work in restaurants and hotels are forced temporarily to seek other employment or remain inactive.
• Frictional unemployment: It arises when workers leave their jobs to find a better one, because some companies are going through a crisis, or because new members of the workforce spend some time looking for work.
• Structural unemployment: The computerization and automation of certain activities may involve many employees who remain unemployed for long periods because they do not possess the required technical information.

Economic and Social Effects of Unemployment

The economic effects of unemployment include the reduction of actual production, falling demand, and rising public deficits. On a social level, it leads to negative psychological effects and discrimination. The duration of unemployment is the time a person remains unemployed. Unemployment costs increase with its duration.

Economic Theories and Explanations

The Classical Perspective

For classical economists, the explanation of unemployment above frictional unemployment (which is considered normal) is based on imperfections and labor market rigidities. This is particularly evident in the willingness of workers to receive wages above the equilibrium salary. When wages are increased above the equilibrium wage, firms demand a smaller quantity of labor.

The Keynesian Perspective

Keynesians argue that unemployment is not due to the behavior of wages, but to the insufficient level of aggregate demand; thus, unemployment will be involuntary. Taking J.M. Keynes as a reference, and acknowledging the existence of unemployment, they are generally inclined to resort to expansionary demand policies. They defend that unemployment above the frictional level is involuntary.

Summary of Theoretical Differences

• Classics: Malfunctioning of the labor market; wages higher than equilibrium.
• Keynesians: Insufficient aggregate demand.