2. 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
3. Key Concepts To Understand Unemployment
• Adult Population
• Labour Force
• Labour Force Participation Rate
• Unemployment Rate
• Discouraged Worker
4. Quick 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.
5. Classification 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.
6. Measurement Of Unemployment
Labour Force - The total number of people employed or seeking
employment in a country or region. Also called work force.
7. 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
Measurement Of Unemployment
9. 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
10. 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.
11. Technical 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.
12. Frictional 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.
“A nation will not surve morally
or economically when so few
have so much, while so many
have so little.”
- Bernie Sanders
13. 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.
14. 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
15. Underemployment
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.
16. 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.
17. Cost 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.
