Unemployment

IDENTIFYING UNEMPLOYMENT
General definition: the unemployed refers to person who is available to work and currently seeking work, but the person is without work Categories of Unemployment
Natural unemployment Cyclical or Keynesian unemployment Frictional unemployment Classical unemployment Structural unemployment

IDENTIFYING UNEMPLOYMENT
Natural Rate of Unemployment
The natural rate of unemployment is unemployment that does not go away on its own even in the long run. It is the amount of unemployment that the economy normally experiences.

IDENTIFYING UNEMPLOYMENT
Cyclical Unemployment
Cyclical unemployment refers to the year-to-year fluctuations in unemployment around its natural rate. It is associated with with short-term ups and downs of the business cycle.

IDENTIFYING UNEMPLOYMENT
Frictional Unemployment
Frictional unemployment occurs when a worker moves from one job to another. While he searches for a job he is experiencing frictional unemployment. This applies for fresh graduates looking for employment as well. This is a productive part of the economy, increasing both the worker's long term welfare and economic efficiency. It is a result of imperfect information in the labour market, because if job seekers knew that they would be employed for a particular job vacancy, almost no time would be lost in getting a new job, eliminating this form of unemployment.

IDENTIFYING UNEMPLOYMENT
Classical Unemployment
Classical or real-wage unemployment occurs when real wages for a job are set above the marketclearing level. This is often ascribed to government intervention, as with the minimum wage; or trade unions

IDENTIFYING UNEMPLOYMENT
Structural Unemployment
This unemployment is caused by a mismatch between jobs offered by employers and potential workers. This may pertain to geographical location, skills, and many other factors. If such a mismatch exists, frictional unemployment is likely to be more significant as well

IDENTIFYING UNEMPLOYMENT
Describing Unemployment
Two Basic Questions:
How does government measure the economys rate of unemployment? What problems arise in interpreting the unemployment data?

How Is Unemployment Measured in Vietnam? Unemployment is measured by the GSO and MOLISA
It surveys around 70-80,000 randomly selected households every year. The survey is called the Labour Force Survey. Information collected at the time of July 01;

How Is Unemployment Measured? US and some other OECD considers a person an adult in working age if he or she is over 16 years old and less than the retirement ages In Vietnam, working age is defined from 15 to 55 (for females) and 60 (for males) as regulated by the Labour Code

How Is Unemployment Measured? Labor Force

The labor force is the total number of people at the working ages, including both the employed and the unemployed.

How Is Unemployment Measured? A person in the labour force that is considered employed if he or she has spent most of the previous months working at a paid job.

How Is Unemployment Measured? A person in the labour force is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job.

Population
In working ages (15-55/60) Out of working ages

Having ability to work

Dont have ability to work

Economically active
Labour force Not in labour force

Employed

Unemployed

How Is Unemployment Measured? The unemployment rate is calculated as the percentage of the labor force that is unemployed.
Unemployment rate = Number unemployed 100 Labor force

How Is Unemployment Measured? The labor force participation rate is the percentage of the economically active population that is in the labor force.

Example 1: Employment in Vietnam

Example 2: Unemployment in ASEAN

Example 3: US Unemployment Rate Since 1960

Percent of Labor Force 10 Unemployment rate

6 Natural rate of unemployment

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Example 4: US labour force participation rate

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Underemployment in Vietnam Underemployment is an issue related to the employed who have work for less than 35 hours/weeks. In this regard, underemployment could be large (but difficult to estimate) in urban areas. In rural areas, as most of the people work in agriculture, underemployment is very high

Structure of Work in Rural Vietnam

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Household income in Rural Vietnam

Underemployment in Rural Vietnam

2004 2003 2002 2001 2000 1999 1998 1997 1996 0 5 10 15 20 25 30 35

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Does the Unemployment Rate Measure What We Want It To? It is difficult to distinguish between a person who is unemployed and a person who is not in the labor force. Discouraged workers, people who would like to work but have given up looking for jobs after an unsuccessful search, dont show up in unemployment statistics. Other people may claim to be unemployed in order to receive financial assistance, even though they arent looking for work.

How Long Are the Unemployed without Work? Varies from country to country. In developed countries, with flexible labour market but strong unions: could be short In developing countries, with labour market regidities but a lot of job opportunities: could be short.

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Why Are There Always Some People Unemployed? In an ideal labor market, wages would adjust to balance the supply and demand for labor, ensuring that all workers would be fully employed.

JOB SEARCH
Job search
the process by which workers find appropriate jobs given their tastes and skills. results from the fact that it takes time for qualified individuals to be matched with appropriate jobs.

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JOB SEARCH
This unemployment is different from the other types of unemployment.
It is not caused by a wage rate higher than equilibrium. It is caused by the time spent searching for the right job.

Why Some Frictional Unemployment is Inevitable Search unemployment is inevitable because the economy is always changing. Changes in the composition of demand among industries or regions are called sectoral shifts. It takes time for workers to search for and find jobs in new sectors.

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Public Policy and Job Search Government programs can affect the time it takes unemployed workers to find new jobs. These programs include the following:
Government-run employment agencies Public training programs Unemployment insurance

Public Policy and Job Search Government-run employment agencies give out information about job vacancies in order to match workers and jobs more quickly.

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Public Policy and Job Search Public training programs aim to ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty.

Public Policy and Job Search Unemployment insurance is a government program that partially protects workers incomes when they become unemployed.
Offers workers partial protection against job losses. Offers partial payment of former wages for a limited time to those who are laid off.

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Unemployment insurance in Vietnam

Taking effect in Jan 2009 Unemployment insurance fund: 1% salary of workers; employers contribute 1% of total wage bill; State contributes another 1% (from wage bill in the state budget) Who is eligible:
Having labour contracts of unspecified term or from 12-36 months Paying unemployment insurance for at least 12 months in the period of 24 months before becoming unemployed

Unemployment insurance in Vietnam

60% of salary before becoming unemployed Duration for unemployment insurance
03 months if having 06 months if having 09 months if having 12 months if having contract from 12-36 months; contract from 36-72 months; contract from 72-144 months; contract from 144 months or more;

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Problems with unemployment in Vietnam

Govt-run employment agencies are very limited in Vietnam; this market is largely left for private agencies Almost no govt-run training programs to ease transition of workers, except small program was undertaken in association with SOE reform in the early 1990; but very limited in scope Problems with unemployment insurance

Problems with unemployment in Vietnam Only applied for those with work contracts It largely related to the wage-employed in Vietnam
Refer back to structure of employment in Vietnam; Pham and Reilly (2008): the wage employed accounted for only one third of the labour force Self employment in rural areas are largely left out Even for the wage employed, the rate of contract worker was around 70% (Pham et al. 2008)

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MINIMUM-WAGE LAWS
When the minimum wage is set above the level that balances supply and demand, it creates unemployment.

Figure 4 Unemployment from a Wage Above the Equilibrium Level

Wage Labor supply

Surplus of labor = Unemployment Minimum wage WE

Labor demand

LD

LE

LS

Quantity of Labor

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Minimum wages in Vietnam (updated for 2006)

Farm labourers are subject to Decree 03/ND-CP and the Circular 23 issued by the Ministry of Labour, War Invalids, and Social Affairs (MOLISA), which state the minimum wage of VND 180 thousand/month (equivalent to US$ 12.8). For those who worked in the foreign-invested sector, the minimum wages were fixed at VND 626 thousand per month (or US$ 45) for foreign-invested enterprises (FIEs) located in the urban districts of Hanoi and Ho Chi Minh City (HCMC); VND 556 thousand/month (or US$ 40) for those located in the rural districts of Hanoi and HCMC and urban districts of Haiphong, Bienhoa and Vungtau; and VND487 thousand per month (or US$35) for workers in FIEs elsewhere.

Minimum wages in Vietnam (updated for 2006) Most recently, the minimum salary, according to the Decree No 03/ND-CP in January 2003, rose to VND 290 thousand per month (or nearly US$ 18.7) for workers in domestic enterprises. Minimum wages in public sector is higher than in the other sectors (currently regulated at 540 thousand/month, and will be increased to 620 thousand VND)

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UNIONS AND COLLECTIVE BARGAINING

A union is a worker association that bargains with employers over wages and working conditions. The process by which unions and firms agree on the terms of employment is called collective bargaining.

UNIONS AND COLLECTIVE BARGAINING

A strike will be organized if the union and the firm cannot reach an agreement. A strike refers to when the union organizes a withdrawal of labor from the firm.

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UNIONS AND COLLECTIVE BARGAINING

A strike makes some workers better off and other workers worse off. Workers in unions (insiders) reap the benefits of collective bargaining, while workers not in the union (outsiders) bear some of the costs.

Are Unions Good or Bad for the Economy? Critics argue that unions cause the allocation of labor to be inefficient and inequitable.
Wages above the competitive level reduce the quantity of labor demanded and cause unemployment. Some workers benefit at the expense of other workers.

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Are Unions Good or Bad for the Economy? Advocates of unions contend that unions are a necessary antidote to the market power of firms that hire workers. They claim that unions are important for helping firms respond efficiently to workers concerns.

Trade Unions in Vietnam

Labour union activities were covered by legislation very early in Vietnam. The first Law on Trade Unions was in effect in November 1957. This was then replaced by a new and currently effective Law on Trade Unions in 1990. Accordingly, the trade unions are organized under the umbrella of the Vietnam General Confederation of Labour (VGCL).

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Trade Unions in Vietnam

The legal role of VGCL was strengthened in the Labour Code with a separate chapter on trade unions (chapter XIII).[1] VGCL is also entitled to a secondary role for the implementation of the labour code together with MOLISA. [1] According to the Labour Code 2002 [] in the case of enterprises which are currently operating without a trade union organization, no later than six months from the date of effectiveness of the Labour Code, and in the case of newlyestablished enterprises, after six months from the date of commencement of operation, the local trade union and industry trade union shall be responsible for establishing trade union organizations at such enterprises (article 154).

Trade Unions in Vietnam

Up to 2000, VGCL had four million members, which accounted for roughly one-tenth of the total labour force (Le et al., 2000). Unions are commonly established in SOEs (Tenev et al., 2003) and at all levels of the administration system. However, due to close links between the unions and the authorities, their bargaining power is generally weak (ADB, 2004). Outside the state sector, unionization is very limited. According to Pham et al. (2002), VGCL had union organizations at a number of 9,429 private enterprises with a total membership of 687,235 workers in 2001.

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THE THEORY OF EFFICIENCY WAGES

Efficiency wages are above-equilibrium wages paid by firms in order to increase worker productivity. The theory of efficiency wages states that firms operate more efficiently if wages are above the equilibrium level.

THE THEORY OF EFFICIENCY WAGES

A firm may prefer higher than equilibrium wages for the following reasons:
Worker Health: Better paid workers eat a better diet and thus are more productive. Worker Turnover: A higher paid worker is less likely to look for another job.

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THE THEORY OF EFFICIENCY WAGES

A firm may prefer higher than equilibrium wages for the following reasons:
Worker Effort: Higher wages motivate workers to put forward their best effort. Worker Quality: Higher wages attract a better pool of workers to apply for jobs.

Summary
The unemployment rate is the percentage of those who would like to work but dont have jobs. The GSO calculates this statistic yearly for urban areas. The unemployment rate is an imperfect measure of joblessness.

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Summary
One reason for unemployment is the time it takes for workers to search for jobs that best suit their tastes and skills. A second reason why our economy always has some unemployment is minimum-wage laws. Minimum-wage laws raise the quantity of labor supplied and reduce the quantity demanded.

Summary
A third reason for unemployment is the market power of unions. A fourth reason for unemployment is suggested by the theory of efficiency wages. High wages can improve worker health, lower worker turnover, increase worker effort, and raise worker quality.

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