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UNEMPLOYMENT

Haresh Thakkar

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Unemployment - Meaning

What is unemployment ?In general sense, unemployment is a situation in which those who are able

and willing to work at the prevailing wage rate do not find job.

A person who is :-a) Physically Fit

b) Mentally sound

c) Well qualified

d) Willing to work at prevailing wage rate

BUT DOES NOT GET JOB, THIS SITUATION IS CALLED UNEMPLOYMENT

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Unemployment

Unemployment can be broadly classified

under two broad categories :-

Voluntary : A person who is physically fit, mentally sound and well qualified, but is unwilling to work at prevailing wage rate.

Involuntary : A person who satisfied all the above conditions and is willing to work at the prevailing wage rate and yet jobs are not available. Involuntary unemployment is also known as FORCED unemployment.

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Measurement of UnemploymentLabour Force of the country consists of those people in the age group of 15-60

years who are employed and those who are unemployed and looking for a job.

LABOUR FORCE = No of employed + No of unemployed.Example :- India’s population – 115 Crores.

If divided in different age group

Out of age group of 15 – 60 years, approx. 40% (25 Crores) are either :-

Physically Handicapped

Mentally Retarded

Men and Women who do not want to work

This leaves approx. 40 crores who now can be employed (65 – 25 = 40 Crores)

Age Group/Years Population

0 - 15 20 Crores

15-60 65 Crores

60 & Above 30 Crores

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Labour Force

Labour Force (40 Crores)

30 Crores 10 Crores (Employed) (Unemployed)

Therefore, Rate of Unemployment (%) = Labour Force – Employed x 100 Labour Force = 40 – 30 x 100 40

Rate of Unemployment = 25%

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Types of Unemployment

Seasonal Unemployment

Unemployment caused because of the

seasonal nature of the employment –

Tourism, Skiing, Cricketers, Beach

Lifeguards.

e.g. Employment opportunities for beach lifeguards are more in Summers as compared to Winters due to the seasonality associated with beach going people.

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Types of Unemployment

Structural Unemployment

Unemployment caused as a result of the

decline in Industries and inability of

former employee to move into jobs being

created in new industries.

e.g. As the coal industry declined, many miners had difficulties utilizing their skills to find work in new industries such as IT and SERVICE SECTOR work.

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Types of UnemploymentCyclical Unemployment

Fluctuates with the business cycle,

increasing during contractions and

decreasing during expansions.

All firms need fewer Workers.

Low total demand in the Economy

A result of a ‘recession’ or ‘slump’ in the Economy

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Types of UnemploymentTechnological Unemployment

Unemployment caused when development

in technology replace human efforts e.g.

Manufacturing, Administration etc.

LOOK NO WORKERS !!!

ROBOTS RULE

WHERE HUMANS ONCE STOOD !!!

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Types of UnemploymentDisguised / Hidden Unemployment

Where output remains the same but number of people employed to

complete the Job is high e.g. In Agriculture Sector Father, Mother, Son,

Daughter working but the output remains same.

Underemployment

People are counted as employed even if they can find only part-time jobs OR

Are vastly overqualified for their job

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Concepts of Unemployment

3 Concepts of Unemployment adopted by NSS (National Sample Survey)

Usual Status of Unemployment

Current Weekly State of Unemployment

Daily Status of Unemployment

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Inflation and the rate of unemployment

The relationship between inflation and employment has been a contentious issue. The neoclassical economists held the view that inflation does not affect the level of employment. However, in 1958. A. W. Phillips, a British economist and a Professor at London School of Economics, brought out a study of the relationship between unemployment and the change in money wage rates in the British economy during the period from 1862 to 1957. Phillips found Inverse relationship between the rate of change in the money wage rate and the rate of unemployment.

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Inflation & Unemployment

FIGURE 9-7 Annual Rates of Unemployment and Inflation in the United States

for 1960–2000 and Representative Phillips Curves

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Phillips CurvePhillips revealed in his study that there exists an inverse relationship between the rate of change in the money wage rate and the rate of unemployment. He presented the inverse relationship between the change in money wage rate and the rate of unemployment in the form of a curve, called Phillips curve.

The general conclusion that is drawn from Phillips empirical finding is that a rise in money wage rate reduces the rate of unemployment and a fall in money wage rate increased the rate of unemployment.

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3 Factors of Phillips CurveThree factors may help to explain shifts in the Phillips curve:

•Structural changes in the labor force

–1970s: Increase in the labor force participation rates of women and teenagers who, at the time, had

higher unemployment rates than men.

–1980s & 1990s: Rate of unemployment for women fell, the movement of teenagers into the market

reversed itself, and an increase in the rate of involuntary part-time employment.

•Cost-push inflation–1970s & 1980s: Brought about by energy price increases

•Eligibility for government transfer payments –Availability of transfer payments increases unemployment, and vice versa.

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Why Phillips Curve RelationshipWhy 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 wage rate and the unemployment rate can be explained by both the demand-pull and the wage push factors.

Demand Pull Factor :- Considering the demand pull factor first, Phillips postulated that during demand-pull inflation, demand for Labour increases with an increase in prices. He argues, “When the demand for labour is very high and there are very few unemployed we should expect employers to bid wage rate up quite rapidly, each firm and each industry being continually tempted to offer a little above the prevailing rates to attract the most suitable labour. Therefore with the increase in the money wage rates, the rate of unemployment decreases.

Wage-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.

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Cost of Unemployment

Personal CostLoss of paycheckLoss of self-esteem Increase in stress related psychological problemsIncrease incidents of crime, suicide, & mental illness.

Economic Cost Loss in output

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THANK YOU

By Haresh Thakkar