Classical unemployment


Unemployment occurs when there are people who are willing and able to work but don’t have a job.Classical unemployment is one of the main types of unemployment. It occurs when the real wages for workers in an economy are too high, meaning that firms are unwilling to employ every person looking for a job.

When real wages are too high, it means that the cost of employing an extra worker (the real wage) is higher than the benefit from employing an extra worker (the value of output the worker produces).
So when real wages are too high in an economy, firms cannot profitably employ all the labour on offer. As a result, some of the economy’s pool of labour is not used. This is known as classical unemployment.

Real wages  are the wages taken home by workers after the impact of inflation has been accounted for. Real wages represent the actual amount of purchasing power a worker earns.

Monday, 21st Mar 2016, 09:45:10 PM

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