Unemployment economics assignment


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Unemployment economics assignment

  1. 1. Advance Diploma Economics Assignment"Its a recession when your neighbor loses his job, its a depression when you lose your own" - Harry S. Truma By: Maha H 1
  2. 2. S.no Topic Pg.no 1. What is un-employment and reasons for its existence 3 1. Various types of unemployment 4 2. Various ways to overcome unemployment 7 3. Costs associated with unemployment 8 4. References 11 2
  3. 3. Unemployment is a state where a person is available and is willing to work but remains un-hired. It isexpressed as percentage of the total available labour force and the level of unemployment can vary withthe economic conditions and other circumstances.Unemployment can be caused due to various reasons like: Inflation Recession Undulating business cycles Due to technological, trends or taste changes Disability Willingness to work Perception of employees Employee values Discriminating factors (e.g. discrimination on the basis of age, class, ethnicity, color and race) Ability to look for jobs 3
  4. 4. Different types of unemployment: Frictional unemployment - It occurs when a person is out of one job temporarily and is searching for a new one. The time in between that it takes for searching a new job a person is said to be frictionally unemployed. It is a type of voluntary unemployment and it always exists in an economy so that the level of: Involuntary unemployment = unemployment rate - the rate of frictional unemployment Therefore, the increases or decreases in unemployment are normally under-represented in the simple statistics. E.g. People changing jobs, fresh graduates looking for jobs etc Residual or Hard core unemployment- It is the remaining unemployment that exists during the times of full employment, made up of people who are unable or unwilling to work owing to a mental or physical disability. 4
  5. 5. Structural unemployment - It exists when there are insufficient people available in the labourmarket with specific qualifications to do a particular job. It happens there is a change in the structureof an industry. As an economy develops over time the structure of an industry might change. Some ofthe reasons of the existence of structural unemployment are: Change in the economy-due to change in peoples tastes, trends, demand and supply. Occupational immobility- This refers to facing difficulties in learning new skills, and adapting to the technological changes. Geographical Immobility-.This refers to the difficulty in moving from places to places to get or find a job. Technological Changes-when technology replaces labour in some industries, the demand for labour force decreases. Structural changes in the economy- when there are industries dying concentrated on a particular area like for e.g. decline of mining and shipbuilding industries due to a lack of competitiveness and the unemployed workforce might find it very difficult to get jobs in new industries such as computers.Seasonal unemployment-It exists during a certain time of the year due to un- favourable weatherconditions, spread of disease etc varying from country to country. Industries that might suffer fromthis type of unemployment are: Hotel and catering Tourism 5
  6. 6. Cyclical or Demand deficient Unemployment- It occurs when the economy is in need of fewerworkforces and when there is an economic disequilibrium. It is known as cyclical unemployment as itmoves with the trade cycle. The demand for labour increases with the economy in the boom phase andwhen the economy passes though recession phase, the demand for labour decreases and the surplus isreleased as the unemployed labour force.Classical or Real Wage Unemployment-It occurs when the wages in a competitive labour marketare raised above the equilibrium. It is also sometimes known as "disequilibrium" unemployment.Here, the wages are not flexible downwards which implies that unemployment would persist for long.Such wages are usually set because of the manipulations in the trade union.Technological unemployment- It occurs when there is a reduction in the need for labour because ofthe changes in technology. For e.g. the introduction of UPC scanners at retail checkout countersallows fewer employees to perform the same amount of work compared to when prices had to beinput into a register. Similarly, utilization of robots in manufacturing plants has reduced the numberof employees required to produce most products.Hidden unemployment- It is the unemployment of potential workers and it is not reflected in theofficial unemployment statistics. Usually only those who have no work but are actively looking forwork are counted as unemployed. Those who are not looking for work or those who are onGovernment "retraining" programmes are not officially counted as unemployed, even though they arenot employed. Similarly, the statistics do not count the underemployed i.e. those having seasonal orpart time jobs. Hidden unemployments official statistics often underestimates unemployment rates. 6
  7. 7. Various ways to overcome unemployment: Frictional unemployment- It occurs when a person is out of one job temporarily and is searching for a new one. It can be reduced if government provides an efficient system of job notification and replacement and thus providing retraining so cope up with the technological advancements and knowledge. It reduces with the development of efficient labor markets and an improving economy. Structural unemployment- It exists when there are insufficient people available in the labour market with specific qualifications to do a particular job.It can be reduced if the workers whose skills are no longer in demand are retrained. It can also be reduced if workers are paid fairly according to the wage limit set by law. If the mobility of labor across different jobs increases, the level of structural unemployment can fall. Also, it can be reduced if the economy and the structure of an industry improve. Seasonal unemployment- It exists during a certain time of the year due to un- favourable weather conditions spread of disease etc. Little can be done to reduce such type of unemployment but the government can provide part time job to people suffering from this type of unemployment. Cyclical or Demand deficient Unemployment- It occurs when the economy is in need of fewer workforces and when there is an economic disequilibrium. It can be reduced by reflating aggregate demand i.e. the government can increase the level of aggregate demand by using policies like lowering interest rates or the direct taxes. It will also encourage foreign multinational companies to make investments into the economy. As a result, cyclical unemployment will decrease. Residual/Hard core Unemployment- - It is the remaining unemployment that exists when people are unable or unwilling to work owing to a mental or physical disability. In order to reduce it government can set up centres especially aimed for disabled people where they can do some jobs related to the handicraft and the art work .Also they can offer tax reductions or employment subsidies to companies to encourage them to employ disabled people. 7
  8. 8. Classical or Real Wage Unemployment-It occurs when the wages in a competitive labour market are raised above the equilibrium. This type of unemployment can be reduced normally if it focuses on the strategy of making each labour market more elastic so that pay conditions become more adaptable to the varying demand and supply conditions. Real wages should rise when the demand, the output and the employment is rising, but they should fall if an industry experiences recession which puts jobs at risk. Technological unemployment- It occurs when there is a reduction in the need for labour because of the changes in technology. It can be reduced if retraining programmes are set for the existing workforce to increase their present skills and knowledge. Hidden Unemployment- It is the unemployment of potential workers and it is not reflected in the official unemployment statistics. It can be reduced by keeping a track of it, and therefore should be reflected in the official unemployment statistics also.Costs associated with unemployment Economic costs of unemploymentIf high levels of unemployment exist it not only proves costly for the individuals and families directlyaffected by it, but also the local and regional economies and the economy as a whole.Economic costs are usually associated with the: Unemployment Rate. It is the percentage of people in the labour force who are available and are willing to work but cannot find a job. Labour Force 8
  9. 9. The people who are willing and are able to work, that are already having a job. Participation RateIt is the percentage of the population with a legal working age declaring themselves as a part of a labourforce. It excludes groups such as: o long term disabled o Women bringing up childrenEconomic costs also cause a lost in the output of goods and services i.e as unemployment causes awaste of scarce economic resources; it therefore also reduces the long run growth potential of theeconomy. An economy with high unemployment rate usually produces within its production possibilityfrontier. The hours cannot be recovered in which the unemployed workers do not work. Fiscal costs to the governmentHigh unemployment rate also has a great effect on government expenditure, taxation and the level ofgovernment borrowing each year. An increase in unemployment results in higher benefit payments andlower tax revenues. When individuals are unemployed, not only do they receive benefits but also do notpay income tax. Their spending power also decreases as their disposal income decreases; they thereforecontribute less with the government indirect taxes. This rise in government spending along with the fall intax revenues may result in a higher government borrowing requirement which is known as a public sectornet cash requirement.Fiscal costs also cause deadweight loss of investment in human capital i.e. unemployment wastessome of the scarce resources used in training workers. The workers who are unemployed for longperiods become de-skilled as their skills become increasingly out-dated in a rapidly changing job market.This reduces their chances of gaining employment in the future, which in turn increases the economicburden on government and society. 9
  10. 10. Social Costs of UnemploymentThe rise in unemployment rate is linked to social and economic deprivation, as it increases there is alsoan increase in the crime rate and it is worsening social dislocation (i.e. there is an increase in divorce rate,health problems and lower life expectancy).High unemployment areas usually also see a decline in the real income and spending power together withrising relative poverty and income inequality. There is also a risk involved with the above averageunemployment which suffers from an ageing potential workforce, as older employees are notgeographically mobile than the younger workers. Thus, it makes them seem less attractive as investmentlocations for new businesses. 11
  11. 11. References:AS and A Level Economics by Colin Bamford, Keith Brunskill, Gordon Cain, Sue Grant ,Stephen Munday , Stephen WaltonIGCSE Business Studies by Karen Borrington and Peter StimpsonBusiness Studies by Dave Hall, Rob Jones, Carlo Raffohttp://ingrimayne.com/econ/Labor/TypesUnempl.html 11