Question

Define Involuntary unemployment.

Hint:

The crucial part of the definition is "at the prevailing wage rate." An individual who is unemployed because they refuse to work for less than a wage the market is not offering is not considered involuntarily unemployed.

Answer 1

Step 1: Understanding the Concept:
The term was popularized by John Maynard Keynes to describe the type of unemployment that exists due to a deficiency in aggregate demand in the economy. It is a key focus of macroeconomic policy.

Step 2: Detailed Explanation:
\begin{itemize} \item Key Conditions: For a person to be considered involuntarily unemployed, they must meet two conditions: \begin{enumerate} \item Willingness to Work: They are actively seeking a job. \item Ability to Work at Prevailing Wage: They are not demanding a wage higher than what is currently offered for their skill set in the market. \end{enumerate} \item Cause: According to Keynesian economics, involuntary unemployment arises when the total demand for goods and services in an economy is insufficient to generate enough jobs for everyone who wants one. It is a sign that the economy is operating below its full potential. \item Contrast with Other Types: It is distinct from: \begin{itemize} \item Voluntary Unemployment: People who are unemployed by choice (e.g., waiting for a better job offer, not wanting to work at the current wage). \item Frictional Unemployment: Temporary unemployment as people move between jobs. \item Structural Unemployment: Unemployment due to a mismatch between the skills of workers and the skills demanded by employers. \end{itemize} \end{itemize}