Involuntary unemployment  

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Involuntary unemployment occurs when a person is willing to work at the prevailing wage yet is unemployed. Involuntary unemployment is distinguished from voluntary unemployment, where workers choose not to work because their reservation wage is higher than the prevailing wage. In an economy with involuntary unemployment there is a surplus of labor at the current real wage. Involuntary unemployment cannot be represented with a basic supply and demand model at a competitive equilibrium: All workers on the labor supply curve above the market wage would voluntarily choose not to work, and all those below the market wage would be employed. Given the basic supply and demand model, involuntarily unemployed workers lie somewhere off of the labor supply curve. Economists have several theories explaining the possibility of involuntary unemployment including implicit contract theory, disequilibrium theory, staggered wage setting, and efficiency wages.

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