Unit 3

Theories of Employment

Concept of Unemployment

 Unemployment is a complex phenomenon

 In simple words unemployment refers to the situation in which a person is not gainfully
employed in the productive activity and thereby does not work
 Unemployment is a term referring to individuals who are employable and seeking a job
but are unable to find a job.
 Furthermore, it is those people in the workforce or pool of people who are available for
work that does not have an appropriate job.
 Usually measured by the unemployment rate, which is dividing the number of
unemployed people by the total number of people in the workforce, unemployment
serves as one of the indicators of an economy’s status.
 It may be both voluntary or involuntary
 Voluntary unemployment refers to those persons who are voluntary unemployed by their
choice. They may now work due to laziness or otherwise, they are not interested in any
gainful job. Or because they refuse to work at the prevailing wage rate in the market
 Unemployment in real sense is taken in the sense of involuntary unemployment.
 It refers to the situation in which the people are willing to work at the at the prevailing
interest rate but could not find the job.

Types of Unemployment

1. Cyclical Unemployment:
 Most common type of unemployment in the developed capitalistic countries
 Associated with the downswing or depressionary phases of the business cycle
 Income and output fall give rise to the widespread unemployment
 Caused by the dificency of aggregate demand
 Income is not sufficient to purchase all the output produced in the economy
resulting into decrease in the production, investment and there by increase
unemployment
  Associated with the simultaneous unemployment of all resources, labour and
capital
 It can be eliminated by raising the aggregate demand sufficiently to lift output
2. Frictional Unemployment
 Not all employment in the capitalistic countries are due to the shortage of demand
 It may result even if the aggregate demand is high
 Cause due to the presence of certain economic frictions or lack of adjustment
between demand for and supply of labor
 In the dynamic works people leave jobs for many reasons, they take time to find
new jobs because of lack of knowledge and mobility on the part of labor
 This give rise to temporary unemployment of those workers who are moving
between jobs
 Frictional unemployment may arise because of several reasons
Change in demand
Economic progress
Occurs for temporary period
3. Structural Unemployment
 Situation when large number of workers do not get job because of limited job
opportunities
 Case of Nepal
 Arise due to :
 shortage of capital and complementary resources
 Inadequate productive capcity
 Underdeveloped structure of the economy
 Can be sloved through economic development
4. Open Unemployment
 Situation where some workers who have absolutely no work to do
 They are willing to work at prevailing wage but they are forced to remain
unemployed
5. Disguised Unemployment
 Situation where person is apparently employed, but in fact is unemployed
  Not open for everyone to see
 Mostly prevails in agriculture
 Given work is shared among large number of people
6. Under employment
 Employed persons contributing to production and income less than what they are
really capable
 People do not get the type of job they are capable of doing or they are trained for
 Due to non-availability of the suitable work as per their abilities and expertise,
they may join inferior jobs
7. Educated Unemployment
 Refers unemployment among the educated
8. Hardcode Unemployment
 Refers to the unemployment of the physically handicapped workers
 Causes:
Unwillingness of the organizations to provide them job
They are not fitted in all jobs due to physical disability