V Meaning of Unemployment

V Measurement of Unemployment

V Macroeconomic implications of Unemployment

V Kinds of Unemployment

V Full Employment
Ôn economic condition marked by the fact that
individuals actively seeking jobs remain unhired.

Unemployment is expressed as a percentage of

the total available work force.

The level of unemployment varies with economic

conditions and other circumstances.
The unemployment rate is expressed as a % & calculated as under-
Unemployment rate = Unemployed Workers
Total Work Force
VÔs defined by the International Labor organization (ILO),
"unemployed workers" are those who are currently not working but
are willing and able to work for pay, currently available to work, and
have actively searched for work. Simply looking at advertisements
and not responding will not count as actively seeking job placement.

VSince not all unemployment may be "open" and counted by

government agencies, official statistics on unemployment may not
be accurate.
VThe ILO describes 4 different methods to calculate the unemployment rate:
i) Labour Force Sample Surveys are the most preferred method since they give
the most comprehensive results and enables calculation of unemployment by
different group categories such as race and gender. This method is the most
internationally comparable.
ii) 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.
iii) Employment Office Statistics are the least effective being that they only
include a monthly tally of unemployed persons who enter employment offices. This
method also includes unemployed who are not unemployed per the ILO definition.
iv) 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.
(i) Reduction in nation·s output ² the unemployed workforce could be utilized for
the production of goods and services. Since they are not doing so, the economy is
losing out on its output.
(ii) Reduction in tax revenue ² since income tax is an important part of the revenue
for the government and the unemployed are unable to earn, the government loses
out on the income tax revenue.
(iii) Rise in government expenditure - the government has to give unemployment
insurance benefits to the claimants. Hence the government will lose from both
sides in terms of unemployment benefits and loss of tax revenue.
(iv) Rise in social cost - these include increasing poverty, personal hardships,
depression, decay of unused skills, increase in crime (mostly among the young) as
well as family disputes and broken marriages. Unemployed individuals become
more and more dissatisfied and resort to riots and demonstrations.
VUnemployment can be categorized into four
types ²
(i) Frictional Unemployment
(ii) Structural Unemployment
(iii) Cyclical Unemployment
(iv) Seasonal Unemployment
Frictional Unemployment occurs when a person is out of one
job is searching for another. It generally requires some time
before a person can get the next job. During this time he is
frictionally unemployed.

The problem of frictional unemployment is minimized with the

development of efficient labor markets. The time period of
shifting from one job to another is almost nil. However,
imperfect information may aggravate the problem of frictional
unemployment. The more developed an economy is, higher is
the probability of getting a job faster and lower is the
probability of frictional unemployment.
VStructural unemployment occurs when there is a change in the
structure of an industry or the economic activities of the country. Ôs
an economy develops over time the type of industries may well
change. This may be because of change in people's tastes or
technology and the result is that the product is no longer in demand.
VItis due to the deficiency of capital resources in relation to their
demand and It is mostly to be found in the underdeveloped
countries.
VIt results from a mismatch between the demand for labor and the
ability of the workers. It does not affect the particular industry that
can have adverse repercussion on related industries as well.
VThe solution to this unemployment problem is economic growth,
education and skill development.
VCyclical or demand deficient unemployment occurs when the
economy is in need of low workforce. This type of unemployment
occurs due to economic disequilibrium.

VThis form of unemployment is most commonly known as cyclical

unemployment since unemployment moves with the trade cycle. The
demand for labor increases with the economy in the boom phase.
Ôgain, when the economy passes though recession, demand for
labor contracts and the surplus is released as the unemployed labor
force.

VThe logical control measure is to maintain growth in the economy

and providing employment opportunities to the unemployed.
VThere are certain kinds of unemployment that tend to concentrate
in a particular time of the year and are known as seasonal
unemployment. This is due to seasonal variations in the activities of
particular industries caused by climatic changes, changes in fashions
or by the inherent nature of such industries.
VThe ice factories are closed down in winter throwing the workers
out of their jobs because there is no demand for ice during winter.
VSuch seasonal industries are bound to give rise to Seasonal
unemployment. Very little can be done to control seasonal
unemployment.
VThe concept of full employment does not mean zero
unemployment.
VFull employment is defined as the level of employment that
results when the rate of unemployment is normal. Most
economist believe that full employment exists when between
94% to 95% of the labor force is employed.
VFull employment incorporates the idea that at a given time
there is some natural rate of unemployment in an dynamic
exchange economy. Natural rate of unemployment is the long
run average of unemployment caused due to frictional and
structural changes in labor market.
 i