Theory of Unemployment: Small But Important Things To Observe.

Theory of unemployment

Theory of unemployment states and implies an excess of supply of labour over demand for labour at the prevailing wage rate which can be described as a type of static imbalance in the labour market.

Unemployment can be defined or explained as a situation in which people that are able and willing to work and searching could not get. Unemployment can also be defined in terms of the inability of large number of persons, who actively desire to be employed at the going wage rate but cannot get.

An ecomonist named G.Reynolds  defined theory of unemployment as the difference between the amount of labour offered at present wage levels,  working conditions and the amount of labour hired at those levels. Unemployment poses a great problem to the economy of a country in terms of resources or welfare cost, apart from its potential as a source of political and social instability.

There are various types of unemployment, they include :

    1. Structural unemployment : This is a long run unemployment which occurs as a result of structural or fundamental changes in the economy that prevents people from getting jobs because of their lack of training or geographical location.
    2. Cyclical unemployment : This is a type of unmployment associated with the recession phase of business cycles because of insufficient aggregate demand.
    3. Frictional unemployment : This is a type of unmployment of short term nature which is due to frictions in the economic system resulting from inefficient labour mobility and imperfect knowledge of job opportunities.
    4. Technological unemployment : This is a type of unemployment which results when industries introduce capital intensive technique of production.
    5. Seasonal unemployment : It occurs when some people are unemployed during a particular year. It is an unemployment which is due to seasonal variation.
    6. Search unemployment : This occurs when people who could not find work which they are fitted but remained unemployed in order to search for a better offer than they have so far received.


  • Disguised unemployment
  • Residual unemployment
  • Voluntary unemployment
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There are several causes of unemployment. They are enlisted below :

    1. Lack of infrastructural facilities : Poor infrastructural facilities such as irregular supply of electricity, bad road, e.t.c discourages local and foreign investment.
    2. Lack of industrialization : The level of industrialization is low in Africa. Presently the number of industries are reducing by the day because they cannot cope with the cost of factors of input.
    3. High cost of education : The cost of education is very high thereby many youths do not go to school beyond elementary level.
    4. Low level of direct investment : The levels of corruption and high crime rate have hindered the flow of foreign capital therefore level of unemployment is high.


  • Urbanization
  • Geographical immobility of labour
  • Lack of adequate skill
  • Defective educational system
  • Over population
  • Government wage policy
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The following are some of the consequences of unemployment :


  • Leads to crime and violence.
  • Leads to starvation.
  • Political and social instability.
  • Reduction in investment.
  • High rate dependency.
  • Stagnation of the economy.
  • Wastage of human resources.
  • Possibility of graduates embarking on menial jobs.
  • Loss of professionals and skilled workers.


Unemployment can be controlled by the following policy measures :


  • Industrialization.
  • Introduction of agricultural policy.
  • Establishment of directorate of employment.
  • Provision of social amenities.
  • Educational policies.
  • Population policies.
  • Rural transformation program.
  • Manpower planning.


  • Incentives to potential investors.

Here are some factors which may influence the level of employment in an under developing or in  developing countries like Nigeria :


  • Official age of retirement.
  • Government wages policy.
  • Activities of trade union.
  • Level of investment expenditure.
  • Availability of finances.
  • Effect of weather.
  • The number of entrepreneurs.
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Unemployment has many terms but here are some of the most used ones associated with underemployment. They are :

    1. Underemployment : This occurs when the productive capacity of labour is unsatisfied. Here employment is not used in their most efficient ways.
    2. Full employment : This occurs when every worker available for employment has a job.
    3. Rate of unemployment : This is the number of unemployment as a percentage of number of labour force or working population.


  • Demographic unemployment.
  • Involuntary unemployment.




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