UnderemploymentUnderemployment is the underuse of a worker because a job does not use the worker's skills, is part-time, or leaves the worker idle. Examples include holding a part-time job despite desiring full-time work, and overqualification, in which the employee has education, experience, or skills beyond the requirements of the job. Underemployment has been studied from a variety of perspectives, including economics, management, psychology, and sociology. In economics, for example, the term underemployment has three different distinct meanings and applications.
Job guaranteeA job guarantee is an economic policy proposal that aims to provide a sustainable solution to inflation and unemployment. Its aim is to create full employment and price stability by having the state promise to hire unemployed workers as an employer of last resort (ELR). The economic policy stance currently dominant around the world uses unemployment as a policy tool to control inflation. When inflation rises, the government pursues contractionary fiscal or monetary policy, with the aim of creating a buffer stock of unemployed people, reducing wage demands, and ultimately inflation.
NAIRUNon-accelerating inflation rate of unemployment (NAIRU) is a theoretical level of unemployment below which inflation would be expected to rise. It was first introduced as NIRU (non-inflationary rate of unemployment) by Franco Modigliani and Lucas Papademos in 1975, as an improvement over the "natural rate of unemployment" concept, which was proposed earlier by Milton Friedman. In the United States, estimates of NAIRU typically range between 5 and 6%.
Structural unemploymentStructural unemployment is a form of involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers (also known as the skills gap). Structural unemployment is often brought about by technological changes that make the job skills of many workers obsolete. Structural unemployment is one of three categories of unemployment distinguished by economists, the others being frictional unemployment and cyclical unemployment.
Involuntary unemploymentInvoluntary unemployment occurs when a person is unemployed despite being willing to work at the prevailing wage. It is distinguished from voluntary unemployment, where a person refuses to work because their reservation wage is higher than the prevailing wage. In an economy with involuntary unemployment, there is a surplus of labor at the current real wage. This occurs when there is some force that prevents the real wage rate from decreasing to the real wage rate that would equilibrate supply and demand (such as a minimum wage above the market-clearing wage).
Natural rate of unemploymentThe natural rate of unemployment is the name that was given to a key concept in the study of economic activity. Milton Friedman and Edmund Phelps, tackling this 'human' problem in the 1960s, both received the Nobel Memorial Prize in Economic Sciences for their work, and the development of the concept is cited as a main motivation behind the prize. A simplistic summary of the concept is: 'The natural rate of unemployment, when an economy is in a steady state of "full employment", is the proportion of the workforce who are unemployed'.
Informal economyAn informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government. Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable. However, the informal sector provides critical economic opportunities for the poor and has been expanding rapidly since the 1960s. Integrating the informal economy into the formal sector is an important policy challenge.
Potential outputIn economics, potential output (also referred to as "natural gross domestic product") refers to the highest level of real gross domestic product (potential output) that can be sustained over the long term. Actual output happens in real life while potential output shows the level that could be achieved. Natural (physical, etc) and institutional constraints impose limits to growth. If actual GDP rises and stays above potential output, then, in a free market economy (i.e.
Frictional unemploymentFrictional unemployment is a form of unemployment reflecting the gap between someone voluntarily leaving a job and finding another. As such, it is sometimes called search unemployment, though it also includes gaps in employment when transferring from one job to another. Frictional unemployment is one of the three broad categories of unemployment, the others being structural unemployment and cyclical unemployment.
Nominal rigidityIn economics, nominal rigidity, also known as price-stickiness or wage-stickiness, is a situation in which a nominal price is resistant to change. Complete nominal rigidity occurs when a price is fixed in nominal terms for a relevant period of time. For example, the price of a particular good might be fixed at $10 per unit for a year. Partial nominal rigidity occurs when a price may vary in nominal terms, but not as much as it would if perfectly flexible. For example, in a regulated market there might be limits to how much a price can change in a given year.
