UNEMPLOYMENT

 Unemployment- this exists when members of the working population

are willing and able to works but can’t find jobs.
 Working population- all those in the population of working age who
are willing and able to work.
What is unemployment rate in the following countries in 2023?
 Kenya ……………………………………….
 Tanzania…………………………………….
 UK …………………………………………..
 China…………………………………………

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Cost of unemployment

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CAUSES/CATEGORIES OF
UNEMPLOYMENT
1. Cyclical unemployment- unemployment resulting from low demand
for goods and services in the economy during a period of slow
economic growth or a recession.
Solutions to Cyclical unemployment
 The government attempts to manage economy so as to avoid
substantial swings in business cycle
 Government may aim to maintain a competitive rate of exchange so
that overseas demand for domestic goods does not fall

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2. Structural unemployment- unemployment caused by the decline in
important industries, leading to significant job losses in one sector of the
industry.
This can be a result of;
 changes in consumer taste and expenditure
 Workers in some industry may find demand for their products declining
 Improvements in technology in many industries means that employers
are looking for adaptable and
multi-skilled workers. Manual and unskilled workers thus find it
difficult to adapt to these requirements
 Deindustrialisation has left many without jobs where their skills are
transferable

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Solution to structural unemployment
o The government will aim to provide educational and training
programs for workers without the necessary skills
o Workers can migrate to areas where their skill is needed.
3. Frictional unemployment- unemployment resulting from workers
losing or leaving jobs and taking a substantial period of time to find
alternative employment.
Solution to frictional unemployment.
 The government will provide information about job opportunities
through introduction of job centres or employment agencies
 The government can also reduce unemployment benefits for those
who are slow to find alternative employment to motivate them to find
work more quickly

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 SOLUTIONS TO
UNEMPLOYMENT
i. Supply side polices- these will increase the productive capacity of an
economy, they are used to increase the production or supply of goods and
services they include :
Education and training- This will improve the skills of the workforce and
make them employable
• Privatisation- this will lead to increase in productivity and investment
thereby resulting to an increase in demand for labour
• Subsidies, tax holiday and tax cut- these incentives given to producers by
the government in order to encourage production and investment at lower
cost, increase in production means more staff needed
ii. Free trade- will lead to an expansion in the market for products thereby
leading to an increase of production in goods. These will require more
labour
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iii. Research and development- this may lead to inventions and
innovative products which will lead to increase in demand for labour to
produce them

iv. Improvement of labour mobility- the government can control the

level of fictional unemployment caused by high bargaining power of
trade unions by controlling their activities and power

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Balance of payments (BOP) (current accounts)
 Balance of payments- this account records the value of trade in
goods and services between one country and the rest of the world.
 A deficit in BOP means that the value of goods and services
imported exceeds the value of goods and serviced exported.
 A surplus of BOP on the other hand means that value of exports
exceeds the value of imports.
Impact of persistent BOP deficit on the country
 A fall in the value of its currency
 A decline in the country’s reserves of foreign currency
 An unwillingness of foreign investors to invest in the economy
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The impact of the above problems to a business are as follows:
 An exchange rate depreciation will make importing expensive
 A decrease in amount of goods produced
 Increase in prices of goods produced
 Lack of demand of business products may lead to firm laying off
workers
Government may make the following polices to control BOP deficit
e.g. tariff and quotas which may have serious retaliation by other
countries thus reducing export demands.

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COST OF UNEMPLOYMENT
 Loss of income which would have been earned on the job thereby resulting to a
decrease in living standards for the unemployed and their descendants
 Depression and psychological problems leading to stress, family break-ups etc.
 Loss of tax revenue to the government.
Increase in government expenditure on social security services e.g. unemployment
benefits. This will lead to a high opportunity cost since this money could have been
used to provide other public goods such as infrastructure.
 Social costs such as an increase in the crime rate, prostitution, development of
slums etc.
 Decrease in economic growth due to a fall in demand for goods and services.
 Unemployment reduces demand for goods and services by reducing the incomes of
those looking for work
 There will be loss of income and lower living standards
 As employees stays long without jobs their skill may become out dated making it
difficult to find work.