Meaning of Employment and Unemployment

Employment, Unemployment, and the Ideas Around Them

Employment, in economics, means the state of being engaged in some productive economic activity in return for wages, salary, profit, or any other form of remuneration. A person is said to be employed when they are actively contributing labour — physical or mental — to the production of goods or services and receiving an income for it.

Unemployment is the situation in which a person who is willing and able to work at the prevailing wage rate is unable to find work. Three conditions must all be true for a person to be counted as unemployed in the strict economic sense: (i) the person must be of working age and part of the labour force; (ii) the person must be willing to work at the going wage rate; and (iii) despite this willingness and ability, the person is unable to find suitable work. A student who has chosen not to work, or a person who has given up looking for work altogether, is not counted as "unemployed" in this technical sense — the labour force itself is defined as the sum of those employed and those unemployed-but-actively-seeking-work.

Full employment is the theoretical situation in an economy where every person who is willing and able to work at the prevailing wage rate actually finds work, so that there is no involuntary unemployment. In practice, no real economy achieves full employment in the absolute sense — some frictional unemployment (people between jobs) is normal and unavoidable even in a healthy, fully-functioning labour market; "full employment" is best understood as the situation where involuntary unemployment (people who want work at the going wage and simply cannot get it) has been eliminated or reduced to this minimal, unavoidable level.

Underemployment describes a situation that looks like employment on the surface but is not adequate employment in substance. It takes two common forms: (a) a person works fewer hours than they are willing and able to work (e.g. a worker who wants a full working day but gets only a few hours of casual work); or (b) a person is working in a job that does not make proper use of their skill, training, or qualification (e.g. a trained engineer working as a shop assistant because no engineering job is available). Underemployment is a serious but often invisible problem, because the person is technically "employed" and does not show up in a simple headcount of the unemployed.

Disguised unemployment is a related but distinct idea, most closely associated with Indian agriculture. It describes a situation where more people are engaged in a job or activity than are actually needed to carry it out — so that if some of these workers were withdrawn, total output would not fall at all. In economic terms, the marginal productivity of the extra workers is zero (or even negative), even though each one appears to be "working" and shares in the family's total income or output. A family of six working a small plot of land that genuinely needs only three workers to farm efficiently is a textbook example: all six are visibly occupied, but three of them are disguisedly unemployed, since removing them would leave output unchanged.