Unemployment

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INTRODUCTION AND
CAUSES

UNEMPLOYMENT
Definition:

Total number of skilled men and

women actively seeking for paid
work is called as unemployment.

UNEMPLOYMENT
During periods of recession, an economy
usually experiences a relatively high
unemployment rate.
Calculation:
Unemployment rate is calculated as
percentage by dividing the no. of
unemployed individuals by total
individuals currently in the labor force

UNEMPLOYMENT
CONTROLLING OR REDUCING
UNEMPLOYMENT
Many societies have been able to have almost
full employment for a significant period of time.
UK in 1950's-60's had averaged 1.6%
unemployment.
Studies suggest that since 1970, attempts to
achieve full employment rather natural
unemployment will fail; resulting in less output
with more inflation.

TYPES OF
UNEMPLOYMENT

Types of Unemployment

UNEMPLOYMENT
2) SUPPLY-SIDE SOLUTIONS:
Disadvantage of demand-side is a minimum
wage law will increase the cost of
low-skilled
worker, resulting in his unemployment.
Make labor market more flexible by reducing
the minimum wage and reducing the power of
unions.
Supply side advocates believe that reducing
business taxes, decreasing labor's share of
national income, reducing regulations will
increase jobs.

UNEMPLOYMENT
1) DEMAND-SIDE SOLUTIONS:
If the demand for goods and services in
the economy increase, demand for
labor will increase, increasing
employment and wages.
One theory is to increase wages of
working class, so they spend more on
goods and services rather than saving.

UNEMPLOYMENT AND
OTHER
MACROECONOMICS
FACTORS

Unemployment financial cost

In many countries the government
has to pay the unemployed some
benefits. The greater the number of
unemployed or the longer they are
without work, the more money the
government has to shell out.
Therefore, the nation not only deals
with lost income and decreased
production but also additional cost.

Spending power
The spending power of an
unemployed person and his family
decreases drastically and he prefers
to save rather than spend which in
turn affects the economy.

Reduced spending power of the

employed
Increased taxes and insecurity about
their own job may affect the
spending power of working people as
they may start to spend less than
before, therefore affecting the
society and economy in a negative
manner.

Recession
With the increase in unemployment
rate, other economy factors are
affected, such as: income per person,
health costs, quality of healthcare,
standard of living and poverty

Effects of unemployment
on society

Crime rate
Studies have shown that
unemployment often results in higher
crime rate. This makes sense
because people may turn to crime to
fulfill their needs.

Psychological effects
Unemployment can have an overall
effect on a person mental health.
Studies have shown that people
experiencing long periods of
unemployment might become
anxious or depressed, and may have
trouble sleeping

Employment gaps
The longer a person is unemployed,
the more difficult it becomes to find a
job. Employers find employment
gaps as negative aspect. No one
wants to hire a person who has been
out of work for sometime even when
there is no fault of the individual.

Loss of skills
The unemployed person is not able
to use his skills. And if he remain
unemployed for a long time, it may
result in loss of some skills.

MEASURING
UNEMPLOYMENT

Why does the government collect

statistics on the unemployed?
Unemployment results in lower
purchasing parity which results in
lower sale.
Lower sale means closure of
industries, thus again causing
unemployment.
Thus, government is coerced to
collect statistics. This helps in
determining adequate measures for
a better economy.

Some Important Definitions

The number of people in the labor
force. This measure is the sum of the
employed and the unemployed. In other
words, the labor force level is the
number of people who are either working
or actively seeking work.
The national unemployment rate. This
statistic reflects the number of
unemployed people as a percentage of
the labor force.

Some Important Definitions

The labor force participation
rate. This measure is the number of
people in the labor force as a
percentage of the civilian population
(16 years old and over).
The population that is either working
or actively seeking work.

Some Important Definitions

The employment-population
ratio. This measure is the number of
employed as a percentage of the
civilian noninstitutional population
(16 years old and over).
In other words, it is the percentage of
the population that is currently
working.

Gathering Statistics
Labour Force Sample Surveys are the most preferred method of
unemployment rate calculation since they give the most
comprehensive results and enables calculation of unemployment by
different group categories such as race and gender.
Official Estimates are determined by a combination of information
from one or more of the other three methods. The use of this
method has been declining in favor of Labour Surveys.
Social Insurance Statistics such as unemployment benefits, are
computed base on the number of persons insured representing the
total labour force and the number of persons who are insured that
are collecting benefits. This method has been heavily criticized due
to the expiration of benefits before the person finds work.
Employment Office Statistics are the least effective being that
they only include a monthly tally of unemployed persons who enter
employment offices.

European Union (Eurostat)

unemployed persons - age 15 to 74
who are not working and are willing
to work in 2 weeks
The main source used is the
European Union Labour Force Survey
(EU-LFS). The EU-LFS collects data on
all member states each quarter.

United States Bureau of Labor

statistics
Stats gathered by 2 surveys- Current
Employment Statistics survey (CES)
& Current Population Survey (CPS).

Limitations of the unemployment

definition-Alternates methods
Current methods are inaccurate-they
donot consider working population
incarcerated in prisons, who have
lost hope for jobs etc
Labor force participation rate:
The ratio between thelabor
forceand the overall size of
theircohort(national population of
the same age range).

Unemployment Rate

How are seasonal fluctuations taken into account?