Voluntary and involuntary unemployment.

Economists often distinguish between those who are voluntarily unemployed and those who are involuntarily unemployed. Voluntary unemployed: Those who are unwilling to take up employment at the going wage rate Involuntary unemployment: Those who are willing, able and available to take up employment in any suitable job at the going wage rate who cannot find employment Those who are voluntarily unemployed prefer to receive benefit rather than seek employment. Classical economists argue that any unemployment remaining in the long run would be voluntary, as the economy would automatically tend towards full employment. It is important to distinguish between these two types of unemployment when deciding how best to reduce the level of unemployment in an economy. If people are voluntarily unemployed, then creating more jobs at the going wage rate will not reduce the level of unemployment, since those who are voluntarily unemployed will still have no incentive to take up employment. The only way to reduce voluntary unemployment is to use supply side measures, which will encourage individuals to take up employment. This can be achieved through schemes like !. "educing the real level of benefits #. "educing the time over which benefits are paid $. %aying benefits only to those who actively seek work & '() )nd making work pay by !. *owering the starting rate of income ta+. #. ,aving a minimum income guarantee scheme for working families through the working families ta+ credit. $. %roviding help with child care for single parents.

,owever if involuntary unemployment e+ists then these supply side measures will be of little use. Involuntary unemployment -which .eynes called, demand deficient or cyclical unemployment/ is best solved by creating employment opportunities for those who are actually willing to work. .eynes advocated using e+pansionary fiscal policy -reducing ta+ rates and increasing government spending/ and e+pansionary monetary policy -reducing interest rates/ to deal with involuntary unemployment. 0sing e+pansionary monetary and fiscal policy would increase aggregate demand and the economy would return to full employment.

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If the involuntary unemployment is confined to certain regions then the best approach is to use regional policy. The government can provide start-up grants and subsidies to firms to relocate in regions with high unemployment. They can also provide training to help the unemployed learn the skills necessary to gain employment.