UNEMPLOYMENT

What is Unemployment?• In economics, unemployment refers to the condition of unwanted

job losses, or willing workers without jobs. The willingness of the unemployed worker to be employed is the key to the idea.

• A person who is physically fit, mentally sound, well qualified, willing to work at prevailing wage rate but does not get job, this situation is called unemployment

Key Concepts To Understand Unemployment

• Adult Population

• Labour Force

• Labour Force Participation Rate

• Unemployment Rate

• Discouraged Worker

Quick FactsUnemployment is lack of full utilization of resources, and eats up the

production of the economy.

Unemployment is highly and negatively correlated with the productivity of the

economy Labour Force Participation Rate

Unemployment management is one of the toughest jobs of every government

in the world.

Along with price level, unemployment is probably the most observable

economic indicator that the general public complains about their government.

Unemployment rate can be anywhere between 1% ~ 30% (beyond is very

much unlikely), and a healthy economy is believed to have an unemployment

rate around 5%.

Unemployment rate is highest among young workers aged between 15 and 24.

Classification Of UnemploymentUnemployment can be broadly classified under two broad categories:

VOLUNTARY UNEMPLOYMENT - Unemployment that results when resources which are willing and able to engage in production choose

not to produce output. These are resources (especially labor) that decide to leave one job, often in search of another.

INVOLUNTARY UNEMPLOYMENT - The contrast to voluntary

unemployment is involuntary unemployment, in which resources are

forced out of work. Involuntary unemployment is also known as

Forced Unemployment.

Measurement Of Unemployment

Labour Force - The total number of people employed or seeking employment in a country or region. Also called work force.

The rate of unemployment in a country is measured by the following formula:-

Unemployment rate = Labour force – Employed labour X 100 Labour Force

Or

Unemployment rate = Number of unemployed X 100Labour Force

Measurement Of Unemployment

Types of unemployment

• Seasonal Unemployment• Technical Unemployment• Frictional Unemployment

Seasonal Unemployment

Seasonal unemployment refers to a situation where a number of persons are not able to find jobs during some months of the year.Example: Agriculture is a seasonal activity. There is an increased demand for labour at the time of sowing, harvesting, weeding and threshing. In between there is little or no demand for labour. Agricultural labour finds himself unemployed during this period. This is called seasonal unemployment.

“Unemployment is of vital importance, particaly to the unemployment”-Edward Heath

Seasonal Unemployment

Because of business cycles, many firms reduce the demand for inputs, including labor in recessional periods when production declines. Cyclical unemployment is used to refer to the fluctuation in unemployment i.e. the unemployment caused by economic recessions.Cyclical unemployment can be zero in full expansions during a business cycle.

Technical UnemploymentUnemployment caused by technological changes or new methods of production in an industry or business. Example: The evolution of the automobile assembly plant. In the beginning, everything on the line was done by humans in order to build a car. The assembly line itself was a great technological innovation. Today, robots are employed for much of the hand-work humans used to do.

Frictional UnemploymentThis is a type of voluntary unemployment that arises because of the time needed to match job seekers with job openings. Just as friction always takes place before the slider comes to its final position on the surface, people need time to find the best job, thus voluntarily rubbing back and forth between choices and staying unemployedExample: When you make up your mind and set off looking for a better job and abandoning the current one, you are in the frictional unemployment labor force.

“A nation will not surve morally or economically when so few have so much, while so many have so little.”- Bernie Sanders

Structural Unemployment• This unemployment arises due to structural change in dynamic

economy. Unemployment caused by massive mismatch of skills or geographic location is noted as structural unemployment.

Example: Heavy Manufacture (mining) - Manufacture now involves machines so humans are no longer needed for the harder work.• Structural unemployment poses more of a problem because

workers must seek jobs elsewhere or must develop the skills demanded. The process is full of pain and frustration, and may lead to negative impacts on society.

Disguised Unemployment

When more people are engaged in some activity than the number of person required for that, this is called disguised unemployment.Disguised unemployment exists where part of the labor force is either left without work or is working in a redundant manner where worker productivity is essentially zero.Example: An agricultural field require 4 laborers but people engaged in this activity is 6 then this unemployment for 2 labors is called disguised unemployment

UnderemploymentThe term "underemployment" has three distinct related meanings. • a situation in which

someone with excellent job qualifications is working in a position which requires lesser qualifications

• working part time when one would prefer to be working full time.

• it is a form of overstaffing in which employees are not being fully utilized.

Example: An engineering working as a pizza delivery man. He is considered to be underemployed and underutilized by the economy as he in theory can provide a greater benefit to the overall economy if he were working as an engineer.

Cost Of Unemployment

Personal Cost

• Loss of paycheck - Loss of earnings to the unemployed

• Loss of self esteem - Those who are unemployed will find it more

difficult to get work in future(this is known as hysteresis effect)

• Increase in social problems - Areas of high unemployment (especially

youth unemployment) tends to have more crime and vandalism.

unemployment benefits.

Cost Of UnemploymentEconomic Cost –

Loss in output – Labour has productivity, high or low, depending on its skill

and availability of capital per labour. Therefore, unemployment means loss

of output expected from the employment of unemployed labour force.

Increased Govt borrowings. Tax revenue will fall because there are less

people paying Income Tax and VAT. Also the Govt will have to spend more

on unemployment benefits.

Lower GDP for the economy - The economy will be below full capacity.

This is inefficient and will lead to lower output and incomes.

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