MADRAS SCHOOL OF SOCIAL WORK

SOCIOLOGY PROJECT Unemployment

By, Poonam Ashok

CONTENTS
Introduction Types of unemployment Causes and effect of unemployment Conclusion

Introduction
Unemployment occurs when a person is available to work and seeking work but currently without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed. Most economic schools of thought agree that the cause of involuntary unemployment is that wages are above the market clearing rate. However, there are disagreements as to why this would be the case: the economists argue that in a downturn, wages stay high because they are naturally 'sticky', whilst others argue that minimum wages and union activity keep them high. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and services in the economy (cyclical unemployment). Others point to structural problems, inefficiencies, inherent in labour markets (structural unemployment). Classical or neoclassical economics tends to reject these explanations, and focuses more on rigidities imposed on the labor market from the outside, such as minimum wage laws, taxes, and other regulations that may discourage the hiring of workers (classical unemployment). Yet others see unemployment as largely due to voluntary choices by the unemployed (frictional unemployment). Alternatively, some blame unemployment on disruptive technologies or Globalization. There is also disagreement on how exactly to measure unemployment. Different countries experience different levels of unemployment; traditionally, the USA experiences lower unemployment levels than countries in the European Union, although there is variant there, with countries like the UK and Denmark outperforming Italy and France and it also changes over time (e.g. the Great depression) throughout economic cycles.

Types of unemployment
Cyclical unemployment
This refers to unemployment that rises during economic downturns and falls when the economy improves. Keynesians argue that this type of unemployment exists due to inadequate effective aggregate demand. It gets its name because it varies with the business cycle, though it can also be persistent, as during the Great Depression of the 1930s. Some consider this type of unemployment one type of frictional unemployment in which factors causing the friction are partially caused by some cyclical variables. For example, a surprise decrease in the money supply may shock participants in society. In this case, the number of unemployed workers exceeds the number of job vacancies, so that if even all open jobs were filled, some workers would remain unemployed. This kind of unemployment coincides with unused industrial capacity (unemployed capital goods). Keynesian economists see it as possibly being solved by government deficit spending or by expansionary monetary policy, which aims to increase non-governmental spending by lowering interest rates. Classical economics rejects the conception of cyclical unemployment, seeing the attainment of full employment of resources and potential output as the normal state of affairs. However, it accepts the theory to some extent as full employment can never be reached This type of unemployment is the most serious one. This arises when demand for most goods and services fall. To the Economist, the country is in recession. When demand falls, less production is needed and consequently fewer workers are being demanded, in such a case mass unemployment can be expected.

Frictional unemployment
This unemployment involves people in the midst of transiting between jobs, searching for new ones; it is compatible with full employment. It is sometimes called search unemployment and can be voluntary. New entrants (such as graduating students) and reentrants (such as former homemakers) can also suffer a spell of frictional unemployment. Frictional unemployment exists because both jobs and workers are heterogeneous, and a mismatch can result between the characteristics of supply and demand. Such a mismatch can be related to skills, payment, work time, location, attitude, taste, and a multitude of other factors. Workers as well as employers accept a certain level of imperfection, risk or compromise, but usually not right away; they will invest some time and effort to find a better match. This is in fact beneficial to the economy since it results in a better allocation of resources. However, if the search takes too long and mismatches are too frequent, the economy suffers, since some work will not get done. Therefore, governments will seek ways to reduce unnecessary frictional unemployment. Policies to reduce frictional unemployment include:

educational advice; schooling and training facilities; information on available jobs and workers; combating prejudice (against certain workers, jobs or locations); incentives and regulations (e.g. when the frictionally unemployed receive benefits); relocation of industries and services; facilities to increase availability and flexibility (e.g. daycare centers); aid or grants to overcome a specific obstacle (e.g. if a handicapped worker is employed); reduction of the gap between gross and net wages (e.g. by taxing consumption instead).

Frictional unemployment coincides with an equal number of vacancies. Numerically, it is therefore maximal when the labor market is in equilibrium. When for instance demand far exceeds supply, the frictionally unemployed will be few as they will get many job offers. The frictions in the labor market are sometimes illustrated graphically with a Beveridge curve, a downward-sloping, convex curve that shows a fixed relationship between the unemployment rate on one axis and the vacancy rate on the other. Changes in the supply of or demand for labor cause movements along this curve. An increase (decrease) in labor market frictions will shift the curve outwards (inwards). Another type of frictional unemployment is seasonal unemployment, where specific industries or occupations are characterized by seasonal work which may lead to unemployment. Examples include workers employed during farm harvest times, or those

working winter jobs on the ski slopes or summer jobs such as life-guarding at outdoor pools and agricultural labor.

Structural unemployment
Structural unemployment involves a mismatch between the sufficiently skilled workers looking for jobs and the vacancies available. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers lack the skills needed for the jobs or are in the wrong part of the country or world to take the jobs offered. It is a mismatch of skills and opportunities due to the structure of the economy changing. That is, it is very expensive to unite the workers with jobs. One possible example in the rich countries is the present combination of the shortage of nurses with an excess labor supply in Information Technology. Unemployed programmers cannot easily become nurses, because of the need for new specialized training, the willingness to switch into the available jobs, and the legal requirements of such professions. Structural unemployment is a result of the dynamics of the labor market and the fact that these can never be as flexible as, e.g., financial markets. Workers are "left behind" due to costs of training and moving (e.g., the cost of selling one's house in a depressed local economy), plus inefficiencies in the labor markets, such as discrimination or monopoly power. Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment. Much technological unemployment (e.g. due to the replacement of workers by machines) might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labor productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with this problem suggests that this problem is instead one of cyclical unemployment. As indicated by Okun's Law, the demand side must grow sufficiently quickly to absorb not only the growing labor force but also the workers made redundant by increased labor productivity. Otherwise, we see a jobless recovery such as those seen in the United States in both the early 1990s and the early 2000s. Seasonal unemployment may be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques.

Seasonal unemployment
In this case, like that of cyclical unemployment, the number of job-seekers exceeds the number of vacancies. However, the problem here is not aggregate demand failure. In this situation, real wages are higher than the market-equilibrium wage. In simple terms, institutions such as "the minimum wage" deter employers from hiring all of the available workers, because the cost would exceed the technologically-determined benefit of hiring them (the marginal product of labor). Some economists theorize that this type of unemployment can be reduced by increasing the flexibility of wages (e.g., abolishing minimum wages or employee protection), to make the labor market more like a financial market

Hidden unemployment
Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government "retraining" programmes) are not officially counted among the unemployed, even though they are not employed. The same applies to those who have taken early retirement to avoid being laid off, but would prefer to be working. The statistic also does not count the "underemployed" - those with part time or seasonal jobs who would rather have full time jobs. Because of hidden unemployment, official statistics often underestimate unemployment rates.

Hardcore unemployment
Hard core unemployment refers to those individuals who might be considered unemployable because of some personal characteristic, such as mental or physical disability, anti social behavior or drug abuse.

Causes and Effects of Unemployment

In the set up of a modern market economy, there are many factors, which contribute to unemployment. Causes of unemployment are varied and it may be due to the following factors: Rapid changes in technology Recessions Inflation Disability Undulating business cycles Changes in tastes as well as alterations in the climatic conditions. This may in turn lead to decline in demand for certain services as well as products. Attitude towards employers Willingness to work Perception of employees Employee values Discriminating factors in the place of work (may include discrimination on the basis of age, class, ethnicity, color and race). Ability to look for employment

Unemployment affects the development of the society in many ways. Individuals are effected the most when there is high unemployment: (1) the employed feel less secure; (2) workers are less willing to leave unsatisfactory jobs; (3) divisions in society increase; (4) the prospect of equality of opportunity decreases. (5) Some local areas can develop a culture of despair. Various attempts have been made to link unemployment to many social ills such as illhealth, premature death, attempted and actual suicide, marriage breakdown, child battering, racial conflicts and football hooliganism.

CONCLUSION
Unemployment always hits individuals the hardest. The jobless lose their self respect, purpose, sense of achievement and, of course, income. It is not just the individuals themselves that are hit, their families also suffer with them. Homes and cars repossessed, arguments at home, perhaps even excess borrowing prolonging the suffering even when another job is found. To compound the problems, the longer a person is unemployed the harder it becomes to find a job. The long term unemployed can really suffer as employers are unwilling to take a chance on someone that no one else was willing to hire. There is also an important impact on society and the economy as a whole. The main impact unemployment has on society and the economy is the productive power that it withholds - i.e. any person who is unemployed could be doing something productive and thus contributing to the economy as a whole. Unemployment also has a direct cost to the government in the form of any unemployment benefits paid to the unemployed and in lost tax earnings. This is a double whammy (additional cost and lost income) that can have serious consequences on the rest of the economy as the government is forced to fund unemployment benefits either from increased taxes or borrowing. The increased taxes suppress consumption, which in turn may lead to increased unemployment (people spending less, less revenues for companies, companies forced to lay people off). Increased borrowing by the government can have similar effects as the government takes more money than normally out of the financial markets, thus having an upwards pressure on interest rates, which results in higher cost for companies, less profits and more layoffs. So unemployment is basically always bad for the economy, however, it can never be zero. This is because at any one point in time there will be individuals who are truly between jobs, even for as little as a week or a month. The 'normal' unemployment figure will vary from country to country, but is generally considered to be around 2-3% (of the workforce). The real evil is when unemployment reaches double figures (10% or more) and includes a large number of people who are unable to find a job for a long time. This can become structural unemployment - a large number of people who become more or less unemployable. We all suffer from unemployment - whether employed or not.