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Unemployment - European labour market:
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Europe > Business and Economy > Jobs and Employment >
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Unemployment - European labour market
Introduction
This report should give the reader an impression of the European labour market in general and an in depth view of the British and the German labour market. Furthermore it shows differences in the approach of fighting unemployment and suggestions as to why one country deals better with it than another. First, a definition of unemployment and the different types of unemployment that exist.
What is unemployment?
Economist recognises two major types of unemployment:
Classical unemployment
Classical unemployment is a situation in which the number of people able and willing to work at prevailing wages exceeds the number of jobs available. In short, the real wage is higher than that at which the market clears. Classical unemployment is explained by any operations of the labour market that prevent the unemployed bidding down wages until it is profitable for firms to find jobs for everyone. Under classical unemployment, firms are not rationed at all - they can get all the labour they want and can sell all the goods they produce. Households, however, can neither sell all the labour they wish nor obtain all the goods they would like to buy with their extremely high wages.
Keynesian unemployment
Keynesian unemployment is similar to classic unemployment in which the availability of labour market supply in the prevailing economic environment exceeds the demand for jobs. At the same time, firms are unable to sell all the goods they would like. Excess supply thus exists in both the labour and goods markets. Keynesian unemployment is one of four economic environments in which quantity rationing exists, i.e. that markets are not in equilibrium. Its important distinguishing feature is in its possible cures. Firms are already unable to sell all their output. This induces them to cut their prices at the same time that workers will be trying to price themselves into jobs by accepting lower wages. When both prices and wages, fall real wages remain constant and it is real wages which determine the level of employment.
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