CHAPTER 13 - UNEMPLOYMENT Costs of Unemployment : (only notes)

Unemployed persons are defined as those who report that they are without work, that they are available for work and that they have taken active steps to find work in the last four weeks.
Economic: There is a loss in output as the workforce is not fully utilised. Waste of resources Workers skills may deteriorate (Deskilling) Psychological: Loss of self esteem; Loss of control o er ones life; Depression !amily increased psychological stress compounded "y economic difficulties created "y loss in income. Society: The unemployed citi#ens of a country stop paying ta$es and start recei ing go ernment support in the form of unemployment "enefits. This leads to a net drain on %o ernment "udget. &ncrease in crime' domestic iolence' alcoholism' drug a"use. (ore pu"lic resources must "e spent to counteract these pro"lems. )g. Larger police force to control crime. Measur n! Unemployment : (notes & textbook) When calculating the le el of unemployment the go ernment only counts those people who register as unemployed and claim "enefit. * large num"er of people seeking work either do not register or do not claim "enefit and are now e$cluded from official figures. The unemployment rate is the percentage of the la"our force officially +o"less. !ull employment occurs when the num"er of notified +o" acancies e$ceeds the num"er of registered unemployed.

Total ,nemployment- the rate of unemployment is usually e$pressed as a percentage of the total workforce (working population) Duration of unemployment- &f the a erage duration of unemployment is only a few weeks then unemployment is not a serious pro"lem. .owe er' if people ha e "een unemployed for more than a year' then it poses a serious pro"lem to the economy. Types of Unemployment : ( only notes)

"R#CT#ONAL Unemployment: !rictional unemployment arises as a result of the process of matching workers with +o"s. The function of the la"our market is to match a aila"le +o"s with a aila"le workers. &f all +o"s and workers were the same' or if the set of +o"s and workers were static and unchanging' the matching process would "e /uick and easy. &n the real world +o"s and workers are highly heterogeneous. 0o"s- differ in location' skills' working conditions' working hours etc. Workers- differ in career aspirations' skills and e$perience' preferred working hours' willingness to tra el etc. Frictional unemployment cannot be eliminated. It can be reduced by the government by improving information services. Information and advice on job vacancies, computerized job lists, the situations vacant columns in the local & national newspaper, internet portals. $TRUCTURAL Unemployment: 1tructural unemployment is caused "y changes in the structure of industry. &t de elops when a ma+or industry suffers a permanent decline in demand for its product.. 2easons3 *n industry might lose its e$port markets to newly esta"lished industries in other nations. Workers might lose their +o"s "ecause demand switches from their industries to more competiti e foreign industries. 3 De elopment of a more efficient su"stitute eg. 4il as a source of fuel led to a fall in the demand for coal. &mpro ement in road transport led to a fall in demand for rail transport. &ntroduction of +et airliners reduced the demand for ocean liners. 3 Technological changes the introduction of ro"ot technology' micro processors' fi"re optics ha e changed the ery nature of production. *lthough +o"s are created in the new industries' workers who ha e lost their +o" in declining industries lack skills re/uired to take up new +o"s. 5ew industries also locate in a new part of the country from those areas in which industries are in decline. In case of tructural unemployment the government sets up a large number of retraining centres for redundant wor!ers, the govt. could also persuade firms to move to areas where the employment rates are declining. %ENERAL Unemployment: &s the most serious type of unemployment and is caused "y a lack of demand. %eneral unemployment e$ists when spending is much too low to purchase all the goods and ser ices which could "e produced if the la"our force were fully employed. !ull employment is a situation when there would "e 6 to 7 8 unemployment. Whate er the state of the economy' there will always "e some people changing +o"s' i.e. there will always "e frictional unemployment. !ull employment is a situation where the num"er of +o" acancies is e/ual to the num"er of people out of work. The demand for la"our is e/ual to the supply of la"our' e en though some people are out of work. Reasons for low demand 1lump in world trade

The go ernment may "e deli"erately reducing the demand for goods and ser ices in order to reduce the rate of inflation. &f domestic industries are slow to change their methods and products than industries in some other countries. 5ew machines' new products' new production methods' new materials' new designs may "e introduced more easily 9 /uickly in other countries. This could lead to a fall in demand for domestic products as "uyers would su"stitute the foreign good for the domestic good. &f wage rates increase faster than producti ity' la"our costs increase' and fewer workers will "e demanded. This leads to further unemployment.

In order to reduce general unemployment, the government there should be an overall increase in the total demand but must be accompanied by income policy. "therwise it would lead to higher wages, higher prices and balance of payments problems. &#$%U#$E& Unemployment &t is peculiar to de eloping countries like &ndia and manifests itself mainly in rural areas. &t is also termed as :underemployment or :hidden unemployment. (ore workers work on a piece of land than can "e economically engaged. &t implies that they work less hours per day or less days per year than a normal fully employed worker. Thus it is a situation in which the withdrawal of a certain num"er of la"ourers to other uses' will not decrease;affect the production of the economic acti ity in which they were engaged in. $EA$ONAL Unemployment: There are few industries which work for few months in a year and remains idle for the rest of the time. )g. 1ugar industry' *gricultural workers may get work more during spring and summer than in winter 1ome industries ha e a seasonal pattern in the demand for la"our. )g. .oliday resorts and hill stations during summer Demand for farm workers increases during the har est period. Types' Causes an( reme( es of unemployment Type "r )t onal &es)r pt on Cause Reme(y

Workers temporarily Delays in applying &mpro e +o" information' "etween +o"s inter iewing and eg computerised +o" accepting +o"s centres Workers ha e the wrong Declining industries and 1u"sidies and impro e skills in the wrong place the immo"ility of la"our the mo"ility of la"our *ll firms need fewer Low total demand in the &ncreased go ernment workers economy spending or lower ta$es

$tru)tural Cy)l )al

Te)*nolo! )al !irms replace workers *utomation and 2etraining with machines information technology Re! onal $easonal .igh unemployment in Local concentration of 2egional aid' one area declining industries relocation grants ,nemployment for part 1easonal of the year demand ariation in 2etraining eg

#s re(u)t on n unemployment t*e only ma+or a m of t*e !o,ernment- ( s)uss The reduction in unemployment should "e the ma+or aim "ecause unemployment represents a waste of resources. ,nemployment has serious social effects too. <eople who lose their +o"s suffer a fall in their standard of li ing. ,nemployment can ha e damaging effects on the morale of those out of work' who can "e made to feel re+ected and unwanted. There is also a loss of skill. %o ernment e$penditure is more when there is unemployment. The other possi"le go ernment aims are (i) * relati ely sta"le price le el-3 This is also an important go ernment aim. &nflation should "e "rought under control otherwise it will ha e harmful effects on the economy. (ii) )conomic growth- 3 1teady economic growth is also necessary for a country. *s population increases the real %D< of the country should increase. (iii) * satisfactory "alance of payments position- 3 * country which is persistently spending more on foreign goods and ser ices than it is earning from its e$ports will "e getting deeper and deeper into de"t with the rest of the world. The aim of economic policy is to pre ent this from happening 1o a reduction in unemployment cannot "e the main aim of the go ernment policy. The other aims mentioned a"o e are also ery important aims of the go ernment policy. =. What are the types of unemployment and which type is most serious> ,nemployment refers to the num"er of people who are a"le to work and willing to work "ut cannot get +o"s. The unemployment rate is measured "y The unemployed people di ided "y the total la"our force ? @AA. The following are the types of unemployment. "r )t onal: !rictional unemployment is descri"es as a short term unemployment .&t is "asically those people who are unemployed "etween +o"s . That is they are looking for "etter prospects. Till the time they get a +o" they will "e unemployed. The go ernment can reduce frictional unemployment "y pro iding "etter information ser ices to the +o" seekers. $easonal 1easonal unemployment is descri"ed as unemployment that is caused due to seasonal demand for workers ' * good e$ample will "e that of the agriculture sector ' where more workers are demanded during the har est season or planting season. *nother is the demand for workers during the summer at holiday resorts and hotels. The workers "ecome unemployed as the winter approaches. $tru)tural 1tructural unemployment takes place when there is a permanent fall in demand for some goods and ser ices due to change in tastes and fashion or cheaper sources of supply from o erseas. &t is a long term unemployment as industries also change their structure of production )g. Boal replaced "y oil.The unemployed workers are

geographically and occupationally immo"ile as their skills are no longer wanted. They ha e to "e retrained and it is the responsi"ility of the go ernment and firms. Te)*nolo! )al Technological unemployment takes place when an industry which is la"our intensi e is replaced "y more capital e/uipment and modern technological ad ancements in science and technology. This su"stitution of capital for la"our results in the workers "ecoming redundant due to technology. *n ideal e$ample is the computers' electronics and communication industries. Cy)l )al . !eneral Byclical unemployment occurs when there is too little demand for goods and ser ices in the economy during an economic recession. !alling aggregate demand during a slump in an economic cycle will mean falling spending on goods and ser ices. &n response to the decrease in demand' firms will make workers redundant. Burrently the economies of ,1* ' 0apan' ,C and %ermany are e$periencing unemployment due to trade cycles and economic recession in these countries. /oluntary Doluntary unemployment is caused when people who are a"le and willing to work "ut do not work. They oluntarily remain unemployed. This may "e due to the unemployment "enefits(transfer payments) that they recei e from the go ernment which are generous and can reduce their incenti e to seek work. & s!u se( unemployment When there is more than the actually re/uired num"er of people working in a +o". This can "e seen mainly in the agricultural sector in de eloping countries like &ndia' Bhina etc. Re! onal unemployment When there is a hea y concentration of unemployed people in a particular place or region' it is known as regional unemployment.&t takes place due to a sudden closure of industries in an area. The go ernment can reduce it "y setting up industries in theses areas.

T*e most ser ous type Byclical ; general unemployment is characteri#ed "y falling demand during a slump in an economic cycle. &t is the most serious "ecause it has a downward effect on output' employment and income. &t can ha e widespread effects on in estment' consumption and production. * fall in aggregate demand leads to fall in in estment' consumption "y household and firms' go ernment spending' )$ports and o erall economic growth and welfare will "e of a serious concern to the go ernment. *ll this can ha e widespread effects in the economy. ,nemployed workers e$perience a fall in income and standard of li ing.&t increases a greater "urden on the go ernment. &t should "e noted that unemployment is an economic disease so more or less all types of unemployment are considered as constraints and a "urden to the go ernment. http-;;www.s3cool.co.uk;ale el;economics;unemployment3and3the3phillips3cur e.html www.dinesh"akshi.com EEEEEEEEEEEEEEEEEEEEEEEEEEEE