Unemployment: Causes, Effects, Sources, Solutions

Unemployment defines when persons over a specified age (usually above 15 years) are not in paid or self-employed employment. But, they are available for work during the reference period. Unemployment is a crucial economic indicator as it indicates the willingness of workers to get gainful jobs. So that they can also contribute to the productive production of the economy. In this article, you will study what are the causes, Effects, Sources, Solutions of Unemployment.

What are the Sources of Unemployment?


1. Software and Technology:

Technological transition usually includes:
  • The implementation of “mechanical-muscle” labor-saving machines
  • More effective “mechanical-muscle” processes (automation). This causes less role of humans in the processes.

2. Economic status, affected by a recession

Recessions lead to higher unemployment, reduced wages, and the loss of opportunities. Education, private capital, and economic growth are all likely to suffer. Economic recession can lead to “scarring”—that is, long-lasting harm to the economic condition of individuals

3. Competition caused by globalization, free trade

Globalization has provided new opportunities. But cultural mixing grows with globalization that allows people from all over the world to communicate. But, traditional hand sharing activity causes fading as boundaries vanish.

4. Governance Policies

The government must seek measures that better achieve its goal to cut redundancy. Some of their measures have the opposite impact on this. One of the policies is Unemployment Insurance. That includes employees who have lost their jobs to get a part of what they won. It raises the rate of unemployment for a limited period, as there is less opportunity for people who earn it aid to search for new jobs.


Banning/refusing innovation Technologies have also banned because of fears about their effect on jobs. This alternative has usually not even seen as a solution for the developed economies, at least.
Education– The proven availability of quality education is a solution. That is at least not opposed in principle by any side of the political spectrum. And also welcomed even by those who are optimistic about long-term technological employment. Better education the government pays for appears to be especially common with industry.
Shorter working hours  That was a voluntary rise in technical redundancy, according to Leontief. The decrease in working hours helped to reduce available work. Supported by workers who were willing to cut back on hours and get more downtime. This is because, at the time, creativity also helped to raise their pay levels.
Public works– Public works projects have been seen as a way for governments to improve jobs. But some, but not all, conservatives have also opposed this.
Unemployment and economic status can be also influenced by a country through fiscal policy. 172 million workers worldwide, or 5 percent of the world’s estimated population, unemployed in 2018.

How to Measure Unemployment?

Global statistical organizations often show various methods of calculating no. of unemployed people. The differences may limit the validity of international comparisons of unemployment data. Although many people care about the number of unemployed people. Although economists usually focus on the rate of redundancy. They correct the normal increase in the number of employed people caused by population increases and increases in the labor force relative to the population.

Forms of Unemployment-

  • Structural focuses on fundamental economic issues and labor market inherent inefficiencies. This includes a disparity between the supply and demand of workers with the required skill sets.
  • Frictional  – The unemployment which exists in any economy because people are moving from one job to another
  • Cyclical  – This resulting in a condition where the demand for goods and services in an economy can not support full employment. It happens during times of sluggish economic growth or times of decline.
  • Involuntary and classical are the major forms of redundancy. Involuntary unemployment arises when an individual is unemployed but willing to work. Involuntary varies from voluntary unemployment, in which workers chose not to work. This is because their reservation wage is higher than the prevailing wage

What are the Effects of Unemployment?

High unemployment increases economic inequality, has a negative effect on economic growth. Unemployment can damage productivity because:
  • Makes a wastage of resources. Creates redistributive pressures and resulting distortions.
  • Pushes people into poverty.
  • Limits liquidity restricting labor mobility.
  • Erodes self-esteem fostering social dislocation, instability, and conflict.
Also, see OECD countries by the long-term unemployment rate

Is Unemployment a Big Problem?

Some say there’s reason to believe that this isn’t a major issue in the United States. One in six unemployed people is teenagers. In June 2005, 33.5 percent of all unemployed people were under the age of twenty-four, and a few of them were their family’s main source of income. Additionally, the average length of a jobless spell is short. Many economists have thought that unemployment is not a very big problem. People tend to prefer a few weeks of unemployment just enough time for people to shift from one job to the next. And those figures are deceptive, though precise. Part of the reason unemployment periods appear short is that many people are at least temporarily dropping out of the labor force because they can not find suitable jobs. And even though most jobless periods are brief, people who are out of work for a long time experience several weeks of unemployment. Then, the average duration of a completed jobless spell would be just 1.05 weeks. But half of all unemployment (half of the total 40 weeks the 21 people are out of work) would be get accounted for by 20-week spells. But, in June 2005, 42.9 percent of the unemployed had been unemployed for less than five weeks. But for six months or more 16.9 percent had been unemployed.

What Causes Long-Term Unemployment?

Empirical research suggests that welfare benefits and unemployment compensation are two factors. Many systems of government help lead to long-term unemployment in two ways. First, the government help increases the measure of unemployment by prompting people who do not work to claim to be looking for work even if they are not. The work-registration rule for welfare recipients compels individuals. This rule increases the measure of unemployed in the workforce. 


Societies are trying many measures to get as many people as possible into work. And for extended periods different societies have experienced near full employment. In the 1950s and 1960s, the United Kingdom averaged 1.6 percent unemployment. In Australia, the 1945 White Paper on Full Employment in Australia established a full-employment government policy that lasted until the 1970s. Mainstream economic discussions of full employment since the 1970s. Yet, lower redundancy levels below the natural rate of unemployment will fail. But only result in lower output and more inflation. However, those are unemployed, can also search for an online job, through various apps and sites.