We’ve a thread here about unemployment and zero hours contracts and so on. Just to clarify for UK liberty and others.
Just about every economist, classical, neo-classical, New Classical, Keynesian, Marxist, the lot, will agree that involuntary unemployment is the result of the price of labour being higher than the market clearing price of labour. Thus the solution is to either lower the price of labour or to bring the market clearing price up to that price.
Why the prices are different is argued about. How to solve it all causes catfights.
Many things change that market clearing price: higher welfare payments will, ceteris paribus, raise that. The financial system falling over will, ceteris paribus, lower it. A property crash will lower it (for there’s a “wealth effect”. We see our wealth go up, we’re willing to spend more now, this increases the labour required to produce for our spending. Prices crash, the effect goes into reverse).
So, for example, in 2008/9, in Spain, vast property crash. There’s going to be a recession. Undoubtedly. And that means rising unemployment. what’s the solution? One might spend lots of borrowed money to boost the economy, raise the demand for labour thus bring the market clearing price up to current price of labour. Unless you can’t borrow any more that is. Or you might think that the price of labour should fall. Problems there: the existence of welfare puts a floor under wages. Also, people hate having their nominal wages cut (Keynes made this point forcefully). So, it has to be a mix of job changes (ie, people lose one job then get another at a lower wage), inflation (nominal wages stay static, real wages fall) and just general growth in productivity (the market clearing price will fall over time as labour productivity increases) to get there. Thus it can take, if direct action isn’t taken, many years to mop up that unemployment.
But the basic point remains. Involuntary unemployment is because the price of labour is too high for the market to clear. There’s no mystery here, no one thinks that a burst of unemployment is as a result of a burst of laziness. The only questions are why have the two prices changed and what in buggery are we going to do about it?