CATANDUANES NATIONAL HIGH SCHOOL

Constantino, Virac, Catanduanes

Unemployment:
Unemployment’s Causes and Effects

Student:
Estorum, Kyara Mae M.
Grade 12 – Stability (ABM)
 EXECUTIVE SUMMARY

In many advanced economies and some emerging economies, the persistence of high levels of
unemployment following the crisis, and the build-up of long-term unemployment, have raised concerns
around a possible rise in structural unemployment. In emerging economies, there are longstanding
concerns about high levels of under-employment, with many workers trapped in low-paid, informal jobs
which fail to develop and fully utilize their skills and capacities. Some groups, e.g., the youth and people
from migrant backgrounds, are at particular risk. These trends have reinforced social disparities in income
and access to productive and rewarding jobs which are causing much hardship for individuals and
families and undermining the growth potential of G20 economies. Underlying these trends has been the
substantial transformation in the sources of job growth and the types of jobs that are being created as a
result of increased globalization, technological change, economic and social development, and
demographic change in all G20 countries. These long-run forces have contributed to skills mismatch and
skills shortages and will continue to put pressure on labor markets to be more adaptable but also on
policies to provide more effective support to jobseekers to avoid a structural increase in unemployment
and under-employment.

To tackle the negative impact of the crisis on employment and social outcomes and prevent the
large cyclical rise in unemployment from translating into higher structural unemployment, countries
should consider:

 Boosting stronger aggregate demand and promoting the creation of quality jobs, including
through greater investment in productive infrastructure where there is fiscal space and in
measures to encourage the development of small and medium-sized enterprises.
 Avoiding unnecessary dismissals and stabilizing employment by facilitating and encouraging
firms’ use of internal flexibility instruments.
 Providing adequate income support to the unemployed but combined with effective
reemployment services and strict mutual obligations.
 Maintaining, and where possible expanding, cost-effective active labor market measures.
 Enhancing and, where necessary, improving employment services effectiveness.
 Ensuring that the skills of the unemployed are developed, maintained and/or adapted to
changing needs.
 INTRODUCTION

The government is aware of the situation of unemployment, notably revealed by the NSO's
official Labor Force Survey, as well as the SWS and other surveys. Unemployment has a lasting effect on
people. It can have a negative impact on both one's physical and mental health. It appears that, in addition
to or in conjunction with any of these psychological and social consequences, an individual’s economic
potential is also affected by periods of unemployment. It results in a loss of income now and elevates the
chances of having another period of unemployment or pay reductions. When a person who was
previously unemployed returns to work, they may face challenges. They may have had a lesser income
than someone who hasn't had their career disrupted. Main causes of unemployment are: (1) Frictional
Unemployment, (2) Structural Unemployment, (3) Classical or Real-Wage Unemployment, (4) Voluntary
Unemployment, and (5) Demand Deficient or “Cyclical Unemployment”.

BACKGROUND

Main causes of unemployment are: (1) Frictional Unemployment, (2) Structural Unemployment,
(3) Classical or Real-Wage Unemployment, (4) Voluntary Unemployment, and (5) Demand Deficient or
“Cyclical Unemployment”.

Frictional Unemployment is an unemployment caused by the time it takes people to transfer from one
job to another, such as graduates or people changing jobs. For reason information isn't perfect and finding
work takes time, there will always be some frictional unemployment in an economy.

Structural Unemployment occurs due to a mismatch of skills in the labor market. It can be caused by:

 Occupational immobility. This refers to the difficulties in learning new skills applicable

to a new industry, and technological change, e.g., an unemployed farmer may struggle to
find work in high tech industries.
 Geographical immobility. This refers to the difficulty in moving regions to get a job,
e.g., there may be jobs in London, but it could be difficult to find suitable
accommodation or schooling for their children.
 Technological change. If there is the development of labor-saving technology in some
industries, then there will be a fall in demand for some types of labor which have been
replaced by machines.
  Structural change in the economy. The decline of the coal mines due to a lack of
competitiveness meant that many coal miners were unemployed. However, they found it
difficult to get jobs in new industries such as computers.
 Classical or Real-Wage Unemployment occurs when wages in a competitive labor
market are pushed above the equilibrium, e.g., at W2 the supply of labor (Q3) is greater
than the demand for labor (Q2) leading to unemployment. Wages could be pushed above
the equilibrium level by minimum wages or trades unions. This is sometimes known as
“disequilibrium” unemployment.
Voluntary Unemployment occurs when people choose to remain unemployed rather than take jobs
available. For example, if benefits are generous, people may prefer to stay on benefits rather than get
work. Frictional unemployment is also a type of voluntary unemployment as they are choosing to wait
until they find a better job.
Deman Deficient or “Cyclical Unemployment”
 Demand deficient unemployment occurs when the economy is below full capacity. For
example, in a recession aggregate demand (AD) will fall leading to a decline in output
and negative economic growth.
 With a fall in output, firms will employ fewer workers because they are producing fewer
goods. Also, some firms will go out of business leading to large scale redundancies.
 In recessions, unemployment tends to rise rapidly as firms lay off workers.

Classical economists emphasize supply-side factors as the main cause of unemployment. They argue that
demand deficient unemployment tends to be only short term. However other Keynesian economists
emphasize the importance of aggregate demand in determining unemployment.

They argue unemployment can be caused demand deficient factors because

1. Wages are sticky downwards; this means workers are not willing to accept a wage cut
2. If wages are cut, then there is a fall in consumer spending this causes a fall in AD.
Therefore, this makes the unemployment situation worse.
3. Efficiency wage theory. This states that if wages are cut workers become dispirited and
work less hard leading to lower output.
4. During a recession confidence is low and firms are reluctant to spend money on
employing more workers even at a lower wage.
 5. Keynes said in the long run wages may adjust, but in the long run, we are all dead! In
other words, why wait several years hoping wages will adjust downwards to reduce
unemployment.
In the 1930s mass unemployment continued until WW2. However, when governments did begin to spend
on military expenditure, unemployment fell.

PROPOSED SOLUTIONS

By advocating and implementing job creation facilitation programs, such as the transmission of
accurate, relevant, and up-to-date labor market information, the DOLE is making a significant
contribution to addressing the problem. The Department of Labor and Employment (DOLE) provides
short-term employment to underprivileged but worthy students and out-of-school children through the
Special Program for the Employment of Students (SPES). With a budget of P140 million for 2012, the
SPES has benefited a total of 136,529 students and OSY as of October 31.

The responsiveness of the education system to the needs of the labor market must be improved
and requires close collaboration between employers, trade unions and public authorities. Preparing young
people for a successful entry into the labor market requires close cooperation between public and private
sectors so that education and training can respond quickly to labor market needs and provide suitable
opportunities to learn in the workplace. Guiding students in their choices of field of study, promoting
their transition from school to work and maintaining and improving skills throughout the working life will
ensure that the full potential of everyone’s skills is exploited, and that the skill needs of enterprises are
effectively met. Many sectors are characterized by rapid transformations, rendering it increasingly
important to better prepare guidance workers and counsellors to understand labor market information and
job demands. This should be part of the policy agenda for responsive education and training.

CONCLUSION

Structural unemployment and underemployment pose a significant concern. The immediate

challenge in certain countries is to prevent excessive and sustained levels of unemployment. As a result,
structural unemployment is on the rise. In others, there is a significant amount of structural
unemployment. Predates the crisis and indicates a failure of policies and institutions to respond to
continuous economic, social, and political changes. Changes in technology, demographics, and society.
Underemployment persists in many emerging economies. Persistently high, with many workers unable to
obtain full-time work and frequently trapped in low-paying, informal jobs with little, if any, social
support. Responding to these difficulties necessitates a collaborative effort. A self-reinforcing system of
policies adapted to each country's unique conditions and designed to, first, boost growth and stimulate
more job creation; second, address structural constraints in the economy. Individuals are unable to find
productive and rewarding work due to barriers in the labor market. A good match for their abilities and
competencies.

RECOMMENDATIONS

Common solution to unemployment is to reduce occupational immobility. It takes time for

people to learn the requisite skills to operate in a specific industry, labor resources are typically
occupationally immobile. As a result, when there is an oversupply of labor in a particular industry or
when there is a recession, people who become unemployed are unable to find work quickly or easily
because they cannot be employed in the industry that requires their skills and because they may not have
sufficient skills to work in other industries. As a result, the government can sponsor retraining programs
for the unemployed so that they can improve or learn new skills that will help them find work.

REFERENCES

https://www.dole.gov.ph/news/dole-press-statement-on-what-the-government-does-to-address-
unemployment-2/

https://www.economicshelp.org/macroeconomics/unemployment/causes/

http://econsilp2014.weebly.com/solutions.html

http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_232094/lang--en/index.htm

https://wapes.org/en/page/wapes-articles

https://www.investopedia.com/articles/economics/10/unemployment-rate-get-real.asp