Principle of Macroeconomics

Final Project
Submitted To: Sir Nasir Munir

Submitted By:
Muhammad Hassaan Nawaz (1947170)
Hassan Askari (1947171)
Ismail Arshad (1947172)
Mahnoor Shahid (1947173)
Mohammad Hashim Shahid (1947175)
 CONTENTS

1. INTRODUCTION

2. CALCULATION OF UNEMPLOYMENT

3. MEASURING UNEMPLOYMENT

4. TYPES OF UNEMPLOYMENT

5. CAUSES OF UNEMPLOYMENT

6. PAKISTAN UNEMPLOYMENT RATE GRAPH

7. EFFECTS OF UNEMPLOYMENT

8. SOLUTIONS

9. CONCLUSION
Abstract: The objective of this report is to create a deeper understanding of the root causes,
impacts of unemployment in Pakistan. It additionally highlights the current circumstance of
unemployment in Pakistan to give more understanding towards where our economy is
moving.

INTRODUCTION
International Labor Organization (ILO) defines unemployment as the number of people who are
above 18 years, and are willing and able to find work at certain wage rate but could not find it as
a result it decreases economic output. High rates of unemployment are a sign of economic
distress, however very low rates of unemployment may signal an overheated economy.
Nowadays, unemployment is found everywhere on the globe. It is not at this point temporary and
manageable. It has rather become a global issue being looked by even the rich and progressed
nations of the world. However, in Pakistan this problem is more acute than in western countries
due to the growing population and demand for jobs. Perhaps there are hundreds of thousands of
people out there who are unemployed.

Unemployment is clearly the base of many evils and crimes. The youngsters who don't have any
work or any kind of or any source of income eventually become indifferent to right and wrong,
good and evil. Corruption, dishonesty, sin, crime, and vices of different types are common
results of unemployment.

How to calculate unemployment rate:

Unemployment rate is the percentage of jobless individuals in an economy among individuals
currently in the labor force. It is calculated as:

Rate of Unemployment = (Unemployed individuals / Total labor force) x 100

Where unemployed workers are the individuals who are currently not working however are
actively looking for work. The total labor force is made up of all employed and unemployed
people in a given economy.

The unemployment rate is one of the most important economic indicators used to assess the
health of a country's economy. It fluctuates with the business cycle, rising during recessions and
falling during expansions. It is one of the most closely watched indicators by policymakers,
investors, and the general public. Policymakers and central banks consider how much the
unemployment rate has risen during a particular recession in order to assess the recession's
impact on the economy and determine how to tailor fiscal and monetary policies to reduce its
negative effects.

How to Measure unemployment:

Four methods are used to measure the unemployment rate:

 Labor Force Sample Surveys: provide the most comprehensive outcomes Calculates
unemployment based on various factors such as race and gender. This is the most
internationally comparable method.
 Official Estimates: combines data from the other three methods. The method is not the
preferred method for calculating the unemployment rate.
 Social Insurance Statistics: These figures are derived from the number of people
receiving unemployment benefits. The method is criticized because unemployment
benefits can run out before an individual finds work, causing the calculations to be
inaccurate.
 Employment Office Statistics: Only a monthly total of unemployed people who visit
unemployment offices is included. This is the least effective method for measuring
unemployment.

TYPES OF UNEMPLOYMENT

Different countries around the globe are facing the issue of unemployment. Sometimes it is more
dangerous to the economy and sometimes it is at mild level. To make it easy to understand
unemployment, it is classified in 4 following categories. There is also 5 th category added
recently.

1) Frictional unemployment: It is the first type, usually, it is not really harmful to the
economy, as when a worker leaves one job and is waiting for the new one, it may take few
days or months, and during these months he will be unemployed. This period of
 unemployment is known as frictional unemployment. As it’s just a little friction between one
job ending and one beginning. It’s not long-term unemployment.

2) Structural unemployment: In this type workforce gets unemployed due to mismatch in the
demographics of workforce and the types of jobs available. It means when the workers are
trained to do specific jobs, but those jobs are not available. However, others jobs are
available in market, but the current workforce is not trained to do them. This is mainly
caused when workforce consists unskilled labor, but market demand is for skilled labor. This
can be caused due to the shift in economy from one sector to another. For example, for
example, China had primary sector economy before communist revolution, but after the
revolution it shifted towards industrial sector (secondary sector), this caused severe
unemployment in china, until the farmers were trained to work in industries.

3) Cyclical unemployment: This type is the most dangerous type, in which labour lost their
jobs due to rapid decrease in demand of good and services in a market. These force
businesses towards redundancy and no more jobs offered, because business do not have
enough resources or funds to pay salaries, due to their loss in business. It happens at the time
of recession (when people suddenly stop spending and attempt to increase their savings,
because they become fearful). For example, ‘The Great Depression’ in United States of
America.

4) Seasonal unemployment: Seasonal unemployment is less harmful to the economy. It

happens in different industries, where the need of the workforce decrease in the market, due
to changing seasons. For Example, in agriculture Sector, the demand of the labour falls in
winters, when the crops are harvested, resulting in loss of job for many workers, who will
now go for another job. Another example can be of the ice-cream makers and sellers, who
might lose their job during winter.

5) Technological unemployment: This type is the recent one. As our world is currently going
through Technological revolution, it has created several new industries, resulting in hundreds
of new jobs. However, it has eliminated hundreds of other (old) jobs, as several jobs are
 substituted with machinery in agricultural sector as well as in industrial sectors. The labor
trained to do those specific jobs, lost their jobs due to this advancement. Technological
unemployment can be observed in almost every sector, in every market.

CAUSES OF UNEMPLOYMENT

Since Pakistan has come in being, it has been plagued by various problems. It has been more
than six decades but Pakistan’s government could not resolve the problem of unemployment.
Unemployment in Pakistan is a persistent problem which is increasing day by day. According to
the world’s unemployment table Pakistan is on 152 nd rank among 199 countries. Its
unemployment rate has reached up to 4.5%. One of the main reasons of unemployment in
Pakistan is its populace being 6th largest populations in the world. But this is just a basic reason.
Other than population there are various other reasons that are not being considered.
 Challenges to Agricultural Sector: Pakistan is an agricultural based country as nearly 62%
of the population lives in rural areas and their source of income is agriculture. Be that as it
may, because of floods, other climatic changes, innovation backwardness and water
deficiency they can't produce as much they ought to be. This influences the per acre yield
which leads to individuals losing their jobs. In 2009-2010, the growth in agriculture was only
2 % against the expected 3.8%.
 Less focus on Education and Research: In order to become a developed country, one has to
spend on research and education but Pakistan’s government is not giving much attention to
this sector as required. More specialized fields can be made by spending on training and
education which can expand the job opportunities. Pakistan invests just 2% of the GDP to
this sector.

 Increase in Population: In 2010, the number of inhabitants in Pakistan has reached to

173.54 million. Population is expanding and job opportunities are turning out to be lesser and
lesser making it hard for the greater part of the population to even survive. Other than
negligent government, deep rooted government, poor schooling system, inaccessibility of
value education and feudalism is likewise worsening the conditions.
 Unrealistic Attitude towards Career choice: Pakistan is among those nations which have
highest number of youth however the unrealistic objectives of youth are expanding
unemployment in Pakistan. After educating they wait for a white-collar job with high salary
in a multinational firm without experience. Not only they dream unrealistic but they wait
until they get the job of their dreams hence losing the chances to get experienced by doing
the lower salary jobs for a short time period and moving to significant salaries after
advancement or moving upwards in profession.

 Lack of Infrastructure: Pakistan lacks in infrastructure. Particularly in the fields of energy,

telecom and energy sector. This is a hurdle in setting a new industry.

 Lack of Capital Expenditures: Despite of extreme unemployment issue in Pakistan,

Government isn't giving due consideration to this matter. It isn't interested on utilizing capital
expenditures so the new positions can be produced.

 Education System: Our education system is also responsible for unemployment. As soon as
a new field is introduced individuals rush to seek its education to get jobs however these
organizations offer admissions to a greater number of individuals than the jobs available or to
be accessible in the country for that field.

 Reference System: Reference system has gotten generally most popular in Pakistan for
employing. Organizations ask their present representatives to refer somebody appropriate for
the job. Individuals being asked generally take the names of the individual in their families or
relatives. That’s how less people searching for the job come across a vacancy and more
people lose the opportunity to apply. This nepotism creates unemployment in the country.

Pakistan Unemployment Rate Graph

Recent values:
 2007-2008 2008-2009 2009-2010
UNEMPLOYMENT RATE 5.20% 5.46% 5.55%
Male 4.31% 4.46% 4.39%
Female 8.52% 9.00% 9.46%
Rural areas 4.71% 4.73% 4.82%
Urban areas 6.34% 7.11% 7.21%
Longer historical series:

According to a Labor Force Survey these are the unemployment rate from 2007 to 2010.

EFFECTS OF UNEMPLOYMENT
 Industrial Disputes: Many of disputes in an industry arises because of unemployment,
it has an adverse effect on employee to employee relation in an industry, which result
in an unemployment in an economy. This is basically the issue of disagreement, which
usually pay for other working condition.

 Exploitation of labor: It refers to cases where people are made to work voluntarily or
under duress while their employer withholds their wages and or cases where they are
made to work under very poor conditions, they have to accept this unfavorable
condition which cause increase in un employment.

 Political Instability: IT adversely affects growth by lowering the rates of productivity

growth and, to a smaller degree, physical and human capital accumulation; Unemployed
persons engage themselves in destructive activities. They consider government worthless.
Economic development becomes difficult under conditions of political instability.

 Social problem: Due to unemployment in a society many social problem arise which
causes social disturbance in a society, due to this social evils country law and order
situation come into danger. And it increases dishonesty, immorality and corruption in a
society.

 Increase in poverty: When a person comes under the situation of unemployment, so as a

result it has no source of income, which cause increase in its burden of debts and poor
people are more likely to have several kinds of health problems. Children growing up in
poverty are less likely to graduate high school or go to college, and they are more likely
to commit street crime, and this type of violence produce destabilizing in a society .

 Loss of human resources: When an unemployment increase, in a society then all the
human resources within a society are wasted, no labor force is made due to un
employment, if they are properly used in an economy then there is no unemployment.
 SOLUTIONS TO ERADICATE UNEMPLOYMENT

 Removing Discrimination: In a country such as Pakistan where power distribution is not

equal and the systems are still flawed, discrimination is yet a great cause of unemployment.
To remove unemployment discrimination on the basis of color, caste and sex should be
removed from the country and the women should be given equal chances of employment.

 Opportunities by Government: Government should provide more opportunities to the

people who are unemployed by created jobs and also provide people jobs who travel from
villages to cites in the hope to earn well or to work. People should be provided with jobs at
their door steps.

 Skill Teaching: Government can play a big role in teaching skills to the people who are
either uneducated or educated but with no skill or lack the right skill to be employed.
Recently The Pakistan Government has taken a step towards this by launching a program of
skill teaching to the youth so less people can be unemployed.

 Economic Development: The Government will have to take concrete efforts to reduce our
reliance on foreign aid or debt and it will have to implement self-reliance measures, which
will necessitate an increase in our economic growth rate.

 Skillful Education: As we know the defective and old structure education system of
Pakistan has not been benefiting many students in many areas the, education system should
be set on focusing such wise so that it can educated students as well as teach the right skill
set to the students so they can use those in practical life achieving goals, and getting jobs in
the country or even in any forging country. Universities with practical approach should be set
up in both the public and private sectors.

 Self-Employment: In a country where there are less jobs offered and less opportunities the
government should introduce such programs which helps the people grow or establish a
business on zero markup loan system so the people can start their own business which will
 eventually lead getting many other people hired for the business and there would be a great
change in the numbers of Unemployment. For example Pakistan government has now taken a
step towards this by letting out loans on zero markups to the youth if they want to start up
their own business.

 Early Age Retirements: People in government jobs are sitting at their positions for many
years, (60-65 years old) after that which they retire from the job, still receiving incentives
and pensions. The government should make such polices for the government sector jobs so
that people should retire earlier if they fail there tests or are not able to work anymore or not
efficiently working. Early age retirements would make vacancies at time for the youth so
there would be less unemployment in the country.

 Overpopulation: Pakistan is one of the world's most densely inhabited countries. The
government should make genuine efforts to slow the rate of population growth. People
should be informed about the harmful impacts of the population growth through conferences,
seminars, and workshops. In this regard, the media should play a role.

 Education: The Literacy rate in Pakistan is 56 percent which means that about half of the
population is lacking education in Pakistan causing higher unemployment rate in Pakistan.
The Government should make institutes in area that lack good and economical or free
education, the government should also make necessary that everyone should at least receive
the basic education in order to earn for at least himself.

CONCLUSION

A great number of Graduates of Pakistan are jobless, Thousands of unemployed individuals are
unable to complete their fundamental necessities, and country’s production is likewise suffered
by the issue of large scale unemployment. Besides this Pakistan's Population has definitely
expanded and steps must be taken against it, if not the issue will turn out to be worst. It is
concluded that there are two significant components that can diminish unemployment, 1) To
utilize Labor intensive industries more and 2) Adapting the Self-Reliance strategies. Nation's
Prosperity and Progress is impossible without the decrease in the unemployment.