The Problem of Unemployment When Markets Clear

There is a substantial disconnect between the way many economists and noneconomists envision the problem of unemployment. Noneconomists generally rely on official unemployment statistics that count an individual as unemployed if she is not currently working, actively looking for work, and willing and able to start working. This version of unemployment, which the general public seems to care about, takes no account at all of what wage unemployed individuals are willing to accept. Economists, on the other hand, often think of unemployment as a labor surplus problem that emerges when the quantity of labor supplied at a market wage is higher than the quantity of labor demanded. Market organization is commonly idealized in the sense that it is assumed to produce full employment as an equilibrium state. As long as markets are thought to clear, economists tend to ignore the problem of unemployment. The fact that noneconomists and economists concern themselves with fundamentally different concepts of unemployment is an impediment to deriving useful insights from these labor surplus models of unemployment. It also overstates the social value of pure market organization of the labor market.