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Voluntary Unemployment

Updated on April 22, 2024
Article byAswathi Jayachandran
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Voluntary Unemployment?

Voluntary unemployment is a circumstance in which individuals are unemployed, not because there are no jobs in the country but because they cannot find a job that meets their preferences. Reasons may vary from the desire for higher wages to work-life balance.

What Is Voluntary Unemployment

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Achieving the desired job can mean more salary and contentment. However, more often than not, regardless of the type of unemployment, there is a brief period between jobs, which means no paychecks or other benefits. It also means there will be financial constraints along with detrimental effects on physical and mental well-being.

Key Takeaways

  • Voluntary unemployment refers to the situation created by workers refusing to work while having open positions with reasonable pay only to attain better opportunities.
  • It is the outcome of a choice not to engage in the working world due to actions such as quitting and seeking desired work.
  • After the voluntary unemployment period, when individuals get what they desire, they tend to live a fulfilled life, which boosts their productivity. Employment thus contributes to the progress of the individual and the economy.
  • If the unemployment period is longer, it becomes challenging to reintegrate people who do not work into the workforce.

Voluntary Unemployment In Economics Explained

Voluntary unemployment is connected to the scarcity of employment of people’s choice. It is the outcome of a decision not to engage with the workforce through quitting and seeking desired or better work. The tolerance demonstrated toward the preference not to work is the most crucial element in the occurrence of voluntary unemployment. This choice is typically influenced by income, education, experience, irrational expectations, preferred work styles, and psychological factors like temperament. Individuals hence prefer to wait until they get what they want.

Voluntary Unemployment In Economics Explained

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There are many negative impacts attached to this type of unemployment. First, it is challenging to reintegrate people who do not work because of diffidence, age, or outdated qualifications and skills into the workforce as there are chances that an individual’s psychology may be negatively impacted by voluntary unemployment. People who lead unproductive, meaningless lives may eventually start acting in ways or going to extremes that society considers unacceptable. It is unrealistic to expect people who lose their sense of balance in life to act in a way that benefits them and the environment.

Moreover, family structures may also get disrupted, and the social order may suffer. The prevalence of crime in society might also rise due to voluntary unemployment. However, the chance of most people joining the workforce between short and medium-term gaps is significant. When individuals get what they desire, they tend to live a fulfilled life, which boosts their productivity. Employment thus contributes to the progress of the individual and the economy.

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Causes 

Several variables might contribute to voluntary unemployment, including high tax rates that eat away the salary, a lack of awareness of open positions, socioeconomic factors, market structure, state interference, technological advancement, and the time needed to upskill. In addition, people might not wish to work out of their own free will due to the income effect, delays in adapting to the skills demanded by the market, irrational expectations, short-term preferences, or factors resulting from human temperament. 

Voluntary unemployment can also be due to not wanting to work, not seeking employment, or acting hesitantly in the job search. Another important reason for voluntary unemployment is the long period involved in the job search process. Furthermore, if people are satisfied with what the government is doing with the unemployment allowance, they may seek voluntary employment.

Examples

Let’s look into voluntary unemployment examples to understand the concept better:

Example #1

Dan is a software engineer who is unhappy with his pay. He takes time off by quitting to upgrade himself and learn more about different programming languages. He upskills to be competitive in the market and attract high salary packages. Here the company did not kick him out; it was instead a voluntary choice made by him to be unemployed for a certain period to gain new skills and boost his salary and career.

Example #2

During the COVID-19 pandemic, the U.S. job market saw remote job searches skyrocketing. Even after the situation has been stabilized, employees prefer remote work to go to the office. Throughout the pandemic, numerous employees have chosen to leave their employment if their employers made them return to the office. 

Employees can save time on commutes and money on fuel, new clothes, and outfit additions by working remotely. However, one of the significant perks offered by working from home is the “work-life balance” factor. Remote work helps employees be in the presence of their family members and be there for them without compromising their job.

Employees quit one job for searching a remote position, and the resulting unemployment period between the switch is voluntary. Moreover, according to a survey published in March 2022 by Robert Half, a multinational recruiting agency, 50% of U.S. employees would prefer to resign than be required to return to the office full-time. 

Voluntary Unemployment And Involuntary Unemployment

Keynes explained involuntary unemployment using the following definition and assumptions:

“Men are involuntarily unemployed if, in the event of a small rise in the price of wage goods relative to the money wage, both the aggregate supply of labor willing to work for the current money wage and the aggregate demand for it at that wage would be greater than the existing volume of employment.”

  • Voluntary unemployment is when someone chooses not to work because they won’t accept a job with low pay or undesirable working conditions. Or simply because they are content with the quantity of government assistance or the unemployment insurance they receive in exchange for their choice of inactivity. Individuals choose to be unemployed voluntarily, according to their preferences. For instance, based on their areas of competence, they can discover many occupations and only settle once they find one that suits them.
  • In the meanwhile, involuntary unemployment happens as a result of a lack of employment. Despite individual job hunting, they were unable to locate any job openings.

Frequently Asked Questions (FAQs)

Which is the common type of voluntary unemployment?

A common type of voluntary unemployment is frictional unemployment or search unemployment, in which the employee voluntarily quits his job in quest of a better opportunity. 

What is the result of voluntary resignation and unemployment?

People voluntarily resign to chase and grab attractive opportunities, contributing to the percentage of unemployment. It also happens in the wake of preference for better work-life balance, more flexible work hours, remote work, higher wages, and better treatment, and people must have the flexibility to do so. When the number of people voluntarily resigning increases, employers compete for workers because there are more open positions than job applicants.

How to reduce voluntary unemployment?

Voluntary unemployment can be reduced by enhancing employee incentive programs, promoting events and activities creating a feeling of inclusion and participation, lowering tax rates altogether increasing take-home pay. 

This article has been a guide to what is Voluntary Unemployment. Here, We explain its causes and examples and comparison with involuntary unemployment. You can learn more about it from the following articles –