Unemployment as a Macroeconomic Problem

Economists are always concerned with efficiency in the use of resources. Resources are used efficiently when they are devoted to their most important or productive uses, broadly speaking. But it is most clearly inefficient if resources simply are unused and go to waste. The resource most likely to be underused (if any resource is underused) is labor. "Unemployment" seems to be an instance of failure to use the available labor. This is why many economists see unemployment as an economic problem.

This is quite controversial. Economists of the school of thought called "new classical" do not regard unemployment as underuse of a resource, and regard the whole idea of underuse of resources in a market economy as being confused. From their point of view, unemployment may not be a problem at all -- and if it is, it is a problem for other reasons.

The two major views on unemployment are:

The "Keynesian" view of Unemployment:

Unemployment is an excess supply of labor resulting from a failure of coordination in the market economy.

The "Classical" view of Unemployment:

Unemployment is job search -- people engaged in the productive work of looking for a better match between worker and employer.

Inflation