Involuntary unemployment occurs when a person is unemployed despite being willing to work at the prevailing wage. It is distinguished from voluntary unemployment, where a person chooses not to work because their reservation wage is higher than the prevailing wage. In an economy with involuntary unemployment, there is a surplus of labor at the current real wage.[1] This occurs when there is some force that prevents the real wage rate from decreasing to the real wage rate that would equilibrate supply and demand (such as a minimum wage above the market-clearing wage). Structural unemployment is also involuntary.
Economists have several theories explaining the possibility of involuntary unemployment including implicit contract theory, disequilibrium theory, staggered wage setting, and efficiency wages.[1]
The officially measured unemployment rate is the ratio of involuntary unemployment to the sum of involuntary unemployment and employment (the denominator of this ratio being the total labor force).
- ^ a b Taylor 2008.