Voluntary Unemployment

Voluntary unemployment is the situation of people who are out of work and looking, but who could get a job at the current wage and have decided not to accept one yet. They may be holding out for higher pay or a job that suits their skills, deciding whether to move, or judging that the extra income from a low-paid job is not worth the cost of taking it. The concept is used to separate unemployment that reflects people's choices from unemployment caused by a lack of jobs.

It is the counterpart of involuntary unemployment, in which people would accept work at the going wage but cannot find it. The distinction comes from debates between classical economics and Keynesian economics. In practice the line is blurred: much of frictional unemployment contains a voluntary element, since job seekers choose how long to search.

Think of someone selling a used bicycle. They get an early offer that feels too low, so they wait a few more days hoping for a better one. The bike is not unsold because nobody wants it; the owner has chosen to hold out. Whether that is sensible depends on how likely a better offer is and how much it costs to keep waiting.

A job seeker can be in the same position. If a job is available but pays less than they believe they can get, or the commute and childcare costs would eat most of the pay, they may keep looking. That chosen wait is voluntary unemployment.

• Searching for a better match. Taking the first offer may mean a poor fit and a later move. Each job seeker has a reservation wage, the lowest pay they will accept, and offers below it are turned down.
• Benefits and other income. Unemployment insurance, savings, a partner's earnings or family support make it easier to wait. The ratio of benefits to previous earnings, called the replacement rate, is widely studied for this reason.
• Costs of working. Travel, childcare and the loss of means-tested welfare payments can leave a worker little better off in a low-paid job, a situation sometimes called a benefit or poverty trap.
• Location and family. People may reject jobs that would require moving away from family, housing or schools.

In classical and many neoclassical models, wages adjust until everyone who wants to work at the market wage is employed. Remaining unemployment is either frictional or voluntary, and a rise in unemployment reflects people choosing not to work, for example because real wages have fallen. Real business cycle theorists in the 1980s explained employment swings largely as voluntary responses to changing incentives.

Keynesian economists reject that account of recessions. They note that when unemployment rises in a downturn, quits fall and layoffs rise, so the extra unemployment is driven by employers rather than workers' choices. Job seekers in recessions also report that they would accept jobs that are not available. Most economists today accept that some unemployment is voluntary at any time, but that the large increases seen in a recession are mainly involuntary.

A large body of research tests how unemployment benefits affect the length of job searches. Studies in the US and Europe generally find that longer or more generous benefits lengthen unemployment spells somewhat, and that exits to work often rise when benefits are about to run out. Estimates of the size of the effect vary widely. Other studies find that benefits can help people find better-paid, longer-lasting jobs, because they can afford to search properly. Research by Alan Krueger and Andreas Mueller found that unemployed people's reservation wages tended to fall only slowly during a spell out of work.

These findings feed into policy design. Many countries require benefit claimants to show active job search and to accept suitable offers, and welfare-to-work programs pair support with obligations. Debates about universal basic income and the negative income tax also turn partly on how much unconditional income reduces willingness to work.

Official statistics do not separate voluntary from involuntary unemployment. Labor force surveys ask whether people are available and actively searching, not why they turned down offers. Analysts use indirect clues: the share of the unemployed who quit their last job, the quit rate, the number of job vacancies per job seeker, and survey questions about acceptable pay. People who do not want a job at all and stop searching are not counted as unemployed but as economically inactive.

Because voluntary unemployment reflects choices rather than weak demand, economists treat it as part of the natural rate of unemployment, which stimulus cannot permanently reduce. It is one reason full employment does not mean zero unemployment.

• Eurostat: Unemployment statistics