What is Unemployment?

Types of Unemployment
Voluntary Unemployment

Involuntary Unemployment

Long-term Unemployment

Short-term Unemployment

Hidden Unemployment

Under employment
Structural Unemployment
A form of unemployment which results from a mismatch between the
sufficiently skilled workers seeking employment and demand in the
labor market.

number of vacancies maybe equal to number of unemployed

 Causes of Structural Unemployment are:

 Technological Unemployment
Best Example is VCR and Bank Teller

 Seasonal Unemployment
 Tourist
 School Holidays
 Agriculture Sector
Frictional Unemployment
It occurs when a worker moves from one job to another
while he searches for his job
 When a person resigns from a job
Fresh graduates
Cyclical Unemployment

• It occurs when there is not enough aggregate demand in the economy.

•It also known as Keynesian unemployment as well as demand deficit unemployment
•They are the ones who get laid off from their job due to a failing economy.

Cyclical unemployment begins occurring at the start of a recession and generally ends at
some point in the expansion phase.
Classical Unemployment
Here, unemployment occurs when real wages for a job are set above the
market-clearing level causing the number of job seekers to exceed the
number of vacancies.

 Often ascribed as government intervention as with the minimum wage or

labor unions.
 Full Employment and the Natural Rate of Unemployment

• It refers to an economic situation in which unemployment

is very low.
• When there is full employment there is a still a small
amount of normal unemployment.
• when new workers enter the labor market, they do not
immediately gain jobs so they search for jobs, even for a
short period of time.
• Hence there would be some unemployment even when
the economy is theoretically at full employment.
• It is the rate of unemployment that corresponds to full
employment.
• It is around 6% unemployment
• When unemployment rate is at the nature rate of
unemployment, then economy is operating at full
capacity.
• When unemployment rate is below the natural rate of
unemployment, then economy is operating above full
capacity.
• When unemployment rate is above the natural rate of
unemployment, then economy is operating below full
capacity.
The Cost of Unemployment
• Unemployment determines the economic and social
stability of any society.
• People rely on their income to maintain their
standard of living
• Unemployed workers represent wasted production
capability.
• Unemployment is harmful for individuals, as there are
some circumstances in which unemployment is both
natural and beneficial for the economy as a whole.
 Okun’s Law
• The percentage change in real GDP to
changes in the unemployment rate.
• (The percentage change in real GDP) =
3% - 2 * (change in unemployment rate)
• This equation basically says that real GDP grows at about 3%
per year when unemployment is normal.
 Measurement of Unemployment
• Many people care about the number of unemployed,
economists typically focused on the unemployment
rate.
• As defined by the International Labor Organisation,
“unemployed workers” are those who are currently
not working but are willing and able to work for pay,
currently available to work, and are actively
searching for work.
The ILO describes four different methods
to calculate the unemployment rate:
 Labor Force Sample Surveys
 Official Estimates
 Social Insurance Statistics
 Employment Office Statistics
◊ Labor Force Survey of 2008, the rate of
open unemployment was 13.6%.
◊ Labor Force Survey of 2009, the rate of
unemployment was 15.2%.
◊ The rate of unemployment has increased
between these two surveys by 1.6%.
Formula

 Rate of Unemployment =
(Total unemployment/Total working population)*100%

 The current rate of unemployment is at somewhere

around 7.4 percent with substantial underemployment.
 Unemployment Rate
16.00%

15.20%
14.00%

12.00%

10.00%

8.00% 8.30%
7.80% 7.70%
7.40%
6.00% 6.60% 6.50%
5.60%

4.00%

2.00%

0.00%
2003 2004 2005 2006 2007 2008 2009 2010
 Unemployment Date of
Year Rank Percent Change
rate Information

2003 7.80 % 119   2002 est.

2004 7.70 % 122 -1.28 % 2003 est.

2005 8.30 % 75 7.79 % 2004 est.

2006 6.60 % 65 -20.48 % 2005 est.

2007 6.50 % 72 -1.52 % 2006 est.

2008 5.60 % 71 -13.85 % 2007 est.

2009 7.40 % 92 32.14 % 2008 est.

2010 15.20 % 152 105.41 % 2009 est.

Country Comparison

Country Unemployment rate (%) Rank

Pakistan 7.4 103

Japan 4.0 152

United Kingdom 5.6 131

United States of America 7.2 107

India 6.8 113

Germany 7.8 94

Russia 6.4 116

China 4.0 153

Afghanistan 40 15

Iran 12.5 57

As the rank of the country increase, unemployment rate decreases.

 Causes
Minimum Wage Laws

Labor Unions

Efficiency Wages

Job Search
 Factors

Poor Governance Poverty

Lack of Education International

economic crises

Backwardness of Non-Transparency
Agriculture sector in Resource
Allocation

High production
cost in all sectors
High domestic Poor tax
loans generation

Political
Nepotism
Instability

Low Globalization
investments

Corruption &
Corrupt practices
 Energy crises

Population
Globalization Growth

Social order Privatization

Declining Foreign
Investment
 Consequences

ECONOMIC EFFECTS
Deflationary Pressures
Decreased Growth
Increased Crime and Social Strife
Increase Government Spending
PSYCHOLOGICAL EFFECTS
Personality
Socio-political attitudes
Differing attitudes
Children and youth
I N D I V I D U A L E F F E C TS

 
Loss of income
Falls in real living standard
Loss of self-esteem
De-skilling and de-motivation
Increased health risks
Low Moral Values

Security Threats

cts
f fe Family Breakdowns
l E
Increase Crimes
c ia
So

Alcholosims
 Recommendations

Good Governance Education

Transparency in resource allocation

Stable political government Advanced skill refresher courses

Broadly defined internal security plans

Security of investors Self-Employment Schemes

Any Questions