Temping and The Search Theory of Unemployment

Unemployment can be described as a situation whereby an individual who is able to work is currently out of work and actively searching for employment. Figures for January 2008 show unemployment in the UK to be around 5.3%.

The search theory of unemployment states that unemployment arises as people search for a job. The theory works on the basis on some key assumptions, the first being that an individual can only search for a job when they are unemployed. Individuals search for jobs sequentially, which means that they search continuously without any gaps. The next assumptions are that the individuals live for one time period which each job search taking up a proportion of that period. It is assumed that there are plenty of job vacancies’ available and that the individual is always offered the job. If the individual declines the job that they are offered they cannot accept it at a later date but will instead accept the next job offered. The final assumption is that wage rates differ, whereby a probability is given for the chance of each wage occurring.

When decided whether or not to accept a job each individual has a reservation wage. If the wage offered is above the reservation wage then it is assumed that the individual will accept the job whilst if it is below then the individual will remain unemployed.

Even at first glance it is clear that some of these assumptions are unrealistic. For example it assumes that the individual is always offered a job – in reality this is quite unrealistic as many jobs have stringent selection procedures in order to recruit the best staff. Many jobs, especially graduate positions have several hundred applicants for only a handful of places.

In reality many jobseekers take on temporary work whilst searching for a job, usually with a job agency. This violates the first assumption that individuals can only search sequentially when unemployed. This basically means that an individual will continually search and until they find employment, with that job being the one that they participate in for the rest of their career. It is quite common for people to take on temporary work in order to gain skills and experience that will make them more attractive to other employers or alternatively take on temporary work whilst waiting for a more desirable job to become available. The theory is therefore insinuating that people are either employed in their desired job or unemployed (job searching). Being involved in temporary employment probably still means that the person is searching for their ideal job but are not unemployed.