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Thursday, September 10, 2015

Voluntary and Involuntary Unemployment

A recent post defined and used the term involuntary unemployment in the standard economic way. A person is involuntarily unemployed if and only if:

1. The person is unemployed; and
2. there exists a wage $$w$$ for which that person would be willing to work; and
3. there exists somebody else that would be willing to pay $$w$$ for that person's services.

While that is the standard definition, it is somewhat confusing to laymen who have a different intuition about the meaning of voluntariness. In particular, one should not confuse the involuntary unemployed with unemployed persons who wish that the market offered them higher wages and for which they'd be willing to work. That is true of everybody, employed and unemployed alike.

The adjectives voluntary and involuntary are appropriate because a voluntarily unemployed person wants to be unemployed given the state of the world, including the market wages and their preference for leisure. An involuntarily unemployed person does not want to be unemployed given the same state of the world.

Involuntary unemployment is a labor market problem. Voluntary unemployment is not a labor market problem; any more than the existence of an unexploited barrel of oil somewhere miles beneath the sea bed and with a cost of extraction higher than the market price for petroleum is a petroleum market problem.

In societies like the modern U.S., a majority of the population is voluntarily unemployed: children, retirees, home-makers, many disabled, the idle rich, and so on. In most cases that is just as it should be.