unemployment
DESCRIPTION
Key Concepts to understand UnemploymentTRANSCRIPT
Could the Bee ever be Unemployed?
What is 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 FitMentally soundWell qualifiedWilling to work at prevailing wage rate
BUT DOES NOT GET JOB, THIS SITUATION IS CALLED UNEMPLOYMENT
Key Concepts To Understand UnemploymentKey Concepts To Understand Unemployment
Adult Population
Labour Force
Labour Force Participation Rate
Unemployment Rate
Discouraged Worker
Quick FactsQuick Facts Unemployment 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 UnemploymentClassification Of Unemployment
Unemployment 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.
MeasurementMeasurement OfOf Unemployment UnemploymentLabour Force - The total number of people employed or seeking employment in a country or region. Also called work force.
47, 83, 00,000 - Labour Force available in India in the year 2010 (source – World Bank Indicator)
MeasurementMeasurement OfOf Unemployment Unemployment
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 100
Labour Force
Types Of Unemployment Types Of Unemployment
Seasonal UnemploymentSeasonal 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.
Cyclical UnemploymentCyclical 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 UnemploymentTechnical Unemployment
Unemployment 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 UnemploymentFrictional Unemployment
This 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 unemployed
Example: 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.
Structural UnemploymentStructural 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 UnemploymentDisguised 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
UnderemploymentUnderemployment
The 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.
Inflation and the rate of UnemploymentInflation and the rate of Unemployment
As per A. W. Philips, a British economist, he found an inverse relationship between the rate of change in the money wage rate and the rate of unemployment
According to his findings, if rate of inflation is high, rate of unemployment is low. On the other hand, if the rate of inflation is low, unemployment rate is high.
For example, when a government intends to lower down the rate of unemployment it had to bear the increase rate of inflation in the national economy.
The Philips CurveThe Philips Curve
According to the Phillips curve, the lower an economy's rate of unemployment, the more rapidly wages paid to labor increase in that economy.
Philips curve reveals that there exists a trade-off between the rate of unemployment and the rate of change in money wage rates, that is, a lower rate of unemployment can be achieved only by allowing money wage rate to increase up to a certain level. This implies that inflation reduces unemployment
Why Philips Curve Relationship?Why Philips Curve Relationship?
Why is there an inverse relationship between the rate of inflation and the rate
of unemployment? Or,
How does inflation reduce the rate of unemployment or how does it promote
employment?
The inverse relationship between the inflation rate and the unemployment
rate can be explained by both
the Demand-pull and
the Wage-push factors.
Demand-Pull FactorDemand-Pull Factor
Philips postulated that during demand-pull inflation, demand for labour
increases as increase in prices.
Thus with the increase in the money wage rates following the rise in inflation
rate, the rate of unemployment decreases.
Two conclusions can be drawn from this description:
Unemployment rate and wage rate are inversely related, and
Upward movement in wage rates is rapid and quick during inflation, and
downward adjustment in wages is gradual, rather sticky, during the period of
deflation.
Wage-Push FactorWage-Push Factor
Wage-Push Inflation is caused by the autonomous demand by the labour
unions for increase in wages in excess of increase in labour productivity.
The lower the rate of unemployment, the greater the union’s power to push
the wages up and vice versa.
Also, the period of low unemployment is generally the sign of ‘buoyant’
product market and high profits. Therefore employers are willing to pay
higher wages. There is fast upward movement in wages and decrease in
unemployment.
Cost Of UnemploymentCost 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.
Cost Of UnemploymentCost Of Unemployment
Economic 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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