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Understanding Classical Unemployment

Guest post by: Uzor Lovas

Article Overview: One theory to put light into the reason behind rising unemployment rates is the so-called classical unemployment.

Understanding Classical Unemployment

One theory to put light into the reason behind rising unemployment rates is the so-called classical unemployment. It is said that when real wages (income of people, institution, or country when factoring in the effects of inflation on the purchasing power) are fixed above the market-clearing level, this results in the number of job-seeking individuals to be more than the actual number of vacant jobs.

In addition, taking into consideration the concept of minimum wage (the lowest possible set wage that an employer can pay an employee) passed by the government to protect the integrity of workers, unemployment rates tend to increase because employers hire those with more skills, displacing those with less skills. Although the setting of a minimum wage helps raise the standards of living of workers and, in general, reduces poverty, employers tend to become choosy in hiring employees so that the latter's value can be maximized. Laying off is not an option when employees are found to be less than their expected value as laws are in place preventing such. This is a most common situation for the employees in most of the working areas. They are not getting much in front of skilled one but also not having enough so that they get skilled. It is a problem of each and every individual because of which unemployment rate is increasing.

Despite the ability of classical employment to predict part of the reason behind rising unemployment rates, it cannot be made as the sole basis because of ignoring numerous external factors.

Understanding of classical unemployment rate is necessary to explore the prime factors behind the falling employment. As employment is falling because people want to hire those who are having much greater skills.

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Article Tags: Unemployment rate



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