Unidentified Floating Unemployment (UFU) and the Specification of the UV-Curve

Abstract

Conceptually, unemployment may originate in various types of (temporary) imbalances on the labour market. Five types of origins are broadly to be distinguished (given the real wage level and the volume of labour supply):Uk: unemployment originating in very short term — seasonal — fluctuations in economic activity;Ul: unemployment originating in the underutilization of the existing physical production capacity;Um: unemployment originating in a shortage of new investment, that fails to compensate for the loss of employment due to the ongoing scrapping of older vintages of production capacity. Two dimensions can be distinguished (a) production capacity may increase too slowly and (b) the new capacity may be too capital intensive to guarantee the absorption (utilization) of the (given) labour force;Un: unemployment due to labour market imperfections leading to real mismatches of supply and demand. Market imperfections, in turn, originate in the behavioural reactions of workers and employers to incomplete information and in the fact that adjustments are seldom immediate and necessarily take time (see de Neubourg 1985a for details);