In a modern economy unemployment has a variety of causes. Some of them relate to the general level of economic activity. Others are the result of a failure of the labour market in an economy to work optimally. There are five main types of unemployment, which are real wage unemployment, demand deficient unemployment, frictional unemployment, structural unemployment and hidden unemployment. On the other hand, this essay will show the different between Keynesian and Monetarist economists. There are including two main policies in Keynesian economist which are reflationary and deflationary policies. Also, there are two main policies which are supply-side and money supply policies of monetarist policies.
Firstly, according to real wage unemployment which also called classical unemployment. Real wage unemployment is a form of disequilibrium unemployment that occurs when real wages for jobs are forced above the market clearing level. Traditionally, trade unions and wages councils are seen as the institutions causing this type of unemployment although the importance of trade unions in the UK labour market has diminished significantly over recent years and this has not stopped unemployment reaching nearly three million twice in the last twenty years. Classical unemployment is thought to be the result of real wages being above their market clearing level leading to an excess supply of labour. Some economists believe that the introduction of the national minimum wage may create some classical unemployment in industries where average wage rates are closer to the NMW level and where international competition from low-labour cost producers is severe.
Secondly, demand deficient unemployment can also called cyclical unemployment, which is involuntary unemployment due to a lack of aggregate demand for goods and services. This is also known as Keynesian “demand deficient”