-
UNEMPLOYMENT
MLS II-G, GROUP 1CalixterioCasimeroDepositarioRobiteOcampo
-
What is UNEMPLOYMENT?
defined as a situation where someone ofworking age is not able to get a job but wouldlike to be in full time employment
often used as a measure of the health of theeconomy
-
The International Labor Organization (ILO)definition of unemployment is those aged 16or over are unemployed if they are:
1. Out of work, want a job, have actively sought work in the last four weeks and are available to start work in the next two weeks.
2. Out of work, have found a job and are waiting to start it in the next two weeks.
-
The most frequently cited measure of unemployment is the unemployment rate.
This is the number of unemployed persons divided by the number of people in the labor force.
-
Causes of UNEMPLOYMENT?
1. Frictional Unemployment
2. Structural Unemployment
3. Classical or Real Wage Unemployment
4. Voluntary Unemployment
5. Demand Deficient or CyclicalUnemployment
-
Frictional Unemployment
This is unemployment that occurs from the inevitable time delays in finding new employment in a free market (e.g. fresh graduates)
This is unemployment caused by the time people take to move between jobs
-
Structural Unemployment
This occurs due to a mismatch of skills in the labor market, it can be caused by:
Occupational immobilities - difficulties inlearning new skills applicable to a new industry,and technological change (e.g. an unemployedfarmer may struggle to find work in high techindustries)
Geographical immobilities - difficulty in movingregions to get a job
-
Technological change - there is the developmentof labor saving technology in some industries,then there will be a fall in demand for labor.
Structural change in the economy - The decline ofthe coal mines due to a lack of competitivenessmeant that many coal miners were unemployed,however they found it difficult to get jobs in newindustries such as computers.
-
Classical or Real Wage Unemployment
This occurs when real wages are kept above the market clearing wage rate, leading to a surplus of labour supplied.
Classical unemployment is sometimes known as real wage unemployment because it refers to real wages being too high.
-
At W2 the supply of labour (Q3) is greater than the demand for labour (Q2).
Wages could be pushed above the equilibrium level by minimum wages or trades unions. This is sometimes known as disequilibrium unemployment.
-
Demand Deficient or Cyclical Unemployment
Demand deficient unemployment occurs when the economy is below full capacity.For example, in a recession Aggregate Demand (AD) will fall leading to a decline in output and negative economic growth.
-
With a fall in output firms will employ less workers because they are producing less goods. Also some firms will go out of business leading to large scale redundancies.
In recessions, unemployment tends to rise rapidly as firms lay off workers.
-
Voluntary Unemployment This occurs when people choose to remain
unemployed rather than take jobs available.
For example, if benefits are generous, people may prefer to stay on benefits rather than get work.
(Frictional unemployment is also a type of voluntary unemployment as they are choosing to wait until they find a better job)
-
Effects of Unemployment
On the Government:
Fewer tax revenues - Because fewer people are working, there will be fewer people earning enough income to pay tax.
Lower economic growth (GDP) - As fewer people have jobs, firms wont be able to produce as many goods and services. As a result, the output of goods and services in the economy, GDP, will be lower.
-
Higher welfare costs - Unemployment in aneconomy means that fewer people will be workingand more people will be claiming benefits
Higher supply-side costs - With unemployment inan economy, more people wont be working.These people need to be taught skills in order forthem to be employable by firms. The governmentwill have to spend more money on training theunemployed so that they have the right skills to beemployed in a modern economy.
-
on Firms:
Lower wage costs - Unemployment in aneconomy increases the supply of labor availablefor firms to employ. This creates a downwardpressure on wages as labor is less scarce and morepeople are willing to get a job at a slightly lowerwage. This will have a positive effect on firms astheir variable costs will fall.
Larger pool of labor - Unemployment creates alarge pool of labour which gives firms more choiceof who to employ. This allows them to employworkers with higher skills and more experience.
-
Less demand for goods and services -Unemployment in an economy means that a lotmore people will have less disposable income.Therefore spending on most goods and serviceswill fall. As a result, firms will experience lowersales revenue and will likely see a fall in profits.
Increase in demand for inferior goods - here aresome goods in an economy that people buy moreoff when their incomes are lower these areknown as inferior goods.
-
Higher training costs - As we have seen, many firms will benefit from lower wage costs as a result of unemployment. However, many firms may also have to spend more resources on training new employees because they have been out of work for so long.
-
On the people:
Lower standard of living - The people who areunemployed will suffer a loss of income and willeither have to survive on private savings or onbenefits. As a result, they will be able to buy fewergoods and services and will see a fall in theirstandard of living.
Loss of skills - When someone becomesunemployed they will stop working and will startlosing their skills and ability to work. The longersomeone stays unemployed, the less employablethey will be.
-
Loss of confidence/depression - People who are unemployed will also suffer a loss of confidence in their ability. Many people who become unemployed will also suffer stress related illnesses and depression.
-
World Statistics on Unemployment
-
The following data were gathered from the world bank (databank) where:
Unemployment, total (% of total labor force) (modeled ILO estimate), 2013
-
Top 50 countries in the world with high
Employment rates
-
Countries with least Unemployment rate
-
The Country with the highest unemploymentrate among members of the Association ofSoutheast Asian Nations (ASEAN), according toa report of the International LaborOrganization (ILO) published in 2014 is
-
Major Causes of High Unemployment in NCR
Rapid Population growth
Lots of people who never got to complete their education
Unqualified graduates due to lack of skills
Rural migration
Repatriation/Deportation of OFWs
