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By employment is meant an engagement of a person in some occupation, business, trade or profession, etc. Employment can be explained by taking three established facts:

(i) Working hours per day.

(ii) Wage rate.

(iii) A man’s state of health.

If the normal working hours per day in an established firm are, say, seven and a healthy man has the capacity to work for nine hour, it cannot be said that the man is unemployed for two hours a day.

Similarly, if the wage rate in a particular occupation is $25 per day and a certain man demand $40 per day, then he would not be able to get employment. Finally, if a man is sick and is unable to work, he cannot be included in the rank of the unemployed.

The classical economists were of the view that in a free competitive economy, unemployment cannot exist for an indefinite period. If anyone remains jobless for a considerable period of time, then it can be only due to the fact that he is demanding more wages than that he is really worth for. The believed that in order to avoid this prolonged unemployment, the worker should accept wage cuts.

The classical economists, however, admitted that in short period unemployment can exist due to various reasons. For example, some unemployment may be caused by the introduction of machinery and other labor saving devices in the factory or it may be due to industrial disputes which lead to temporary unemployment among the factory workers. Some unemployment can also exist in factories for a part a year where the work is carried out seasonally.

For example, sugar factory works only in winter and ice factory in summer. Some unemployment can also be due to the fact that unions are maintaining high level of wages. The employers do not find it advantageous to keep this at a higher level of wages. They retain a few competent workers and dispense with the services of less efficient ones.

The modern economists have, however, rejected the above view point given by the classical economists. They believe that in actual word, perfect competition dose not prevail. It is not necessary that by lowering the wage rate only, the economy can operate at the level of full employment.

During the Great Depression of Thirties, the economy could not be lifted out even by lowering the wage rates. J.M. Keynes is of the opinion that unemployment can only take place when the current demand for goods and services is not efficient to absorb the available labor into different occupations.

Employment depends on spending of the whole income of the people either on consumption or on investment goods. As the level of money income increases in a community, people tend to spend a smaller portion of their income on immediate consumption. So there will be a deficiency of return to entrepreneurs. They try to cut down the volume of employment they offer to the factors. This tendency may be counteracted if investment in capital goods expands sufficiently. But in a wealth country, there may be comparatively less new opportunities for investment. Hence the necessary increase in the volume of investment may be not made with the result that a portion of labor force is unable to find employment.