Grade 11 (2023)

CHAPTER: UNEMPLOYMENT
 Definition of unemployment
 Unemployment and full employment
 Changing patterns and level of employment
 Measurement of unemployment
 causes/types of unemployment
 Consequences of unemployment
 Policies to reduce unemployment

DEFINITION: Unemployment is defined as a situation where an individual or

worker is willing and able to work but cannot find a job over a given
period of time.

 DEFINITION OF Full employment refers to a situation in which every able person who
FULL is willing to work at the prevailing wage rate is in fact, employed. It
EMPLOYMENT: needs to be noted that although full employment means a situation
where all resources in the economy land, labour, capital, etc.—are
fully employed but for simplifying meaning of full employment, it is
restricted to labour market only.

Every economy in the world aims at achieving the level of full

employment equilibrium where all its available resources are fully
and efficiently employed because it leads to maximum level of output

In reality, full employment never exists because it is always possible

to find some people unwilling to do any productive work though they
may be fit physically and mentally.

In short, full employment does not stand for zero unemployment. A

certain percentage of unemployment, say, up to 3%, is inevitable due
to frictional and technological unemployment.

 CHANGING PATTERN AND LEVEL OF EMPLOYMENT:

Employment is the work that people do in an economy. Over time, patterns of employment
change. Some industries decline and jobs disappear while new types of industries and jobs
develop.
Employment levels too change over time due to many reasons:
 Effects of business/economic cycle that every economy goes through from time to time.
 Demographic changes of the country.

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 Structural changes.
The reasons for changes in the pattern and level of employment:
1. More women at work:
Over the past 30 years, greater number women choose have joined the labour market. They
have even take up careers which used to be male dominated only. The reasons being:
 Greater flexibility and the rights related employment laws and regulations.
 With the emancipation of women, increased opportunities are available for girls to
achieve higher education.
2. Rise of the service sector:
Over the past 30 years, service sector has gained dominance in many countries such as the
tourism sector, banking, insurance, education, private healthcare and consultancy. As a
result more jobs are created and there is need for higher labour force.
3. Expatriate workers:
There are greater number of expatriate workers who come to settle and work in domestic
countries. In Mauritius for instance, many labour and odd- jobbing are done by expatriate
workers mostly from Bangladesh. Other industries in which expatriate workers dominate
are construction and agriculture. Textile sector in Mauritius has a big percentage of
expatriate workers. The reason for this could be due to the availability of workers from
neighbouring countries who are willing to work at a lower wage rate than domestic
workers.
4. More skilled workers
Over the past years, skilled workers have been increasing in the work force, explained by
increased availability of education and training programs. Therefore more and more people
are seen taking up professional careers.
5. Part-time workers
There has been a growth in the level of part-time employment. This may be a lifestyle
choice on the part of many, but firms have encouraged this trend as part-time employment
offers more flexibility. Besides, this also occurred mainly because of more women being in
the workplace and many only work part-time due to child care commitments.
The increase in students going to college and university has also resulted in a large
temporary workforce available to work as receptionists, sales persons, cashiers, tutors and
similar jobs.
6. Increasing self-employment
This trend is increasing in many countries

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 Why employment is an important macroeconomic objective:
High employment is an important macroeconomic objective because:
1. It raises standard of living for the average people.
2. It raises tax revenue.
3. It reduces the financial burden and opportunity cost of the government.
4. It reduces income and wealth inequality.
5. It prevents ‘brain drain’ from the economy.

 MEASURES OF UNEMPLOYMENT:
Two main ways to measure or define unemployment are:
(i) Claimant count
(ii) Labour survey method.

(i) Claimant count: (ii) Labour Force survey:

It measures the number of people who are It is the alternative measure of
out of work and claiming unemployment unemployment produced by the ILO. It uses
benefits/Job seeker’s Allowance. To qualify standardized household- based survey to
benefits one must: collect work related statistics such as
 Be over 18 years old and not in full time employment status, education and training
education. opportunities. It is used by all member
 Be available to work and they are states of the European Union and other
actively seeking job. countries too. The ILO measure
 Have less than £16,000 in household unemployment based on the following:
savings.  Willing to work, but unable to find it.
 Not be working more than 16 hours per  Actively looking for work i.e they have
week, or have a partner who is working looked for job in the last 4 weeks and
more than 24 hour.  Able to start work within the next two
weeks or
Critics argue that the claimant  Waiting to start a new job within the
underestimates the true level of next two weeks.
unemployment, because many people are
not eligible for unemployment benefits such
as those seeking for part time job on job
training schemes.

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 How to measure unemployment:
Economists calculate unemployment rate as:

Unemployment rate= Number of unemployed X 100

labour force/working population

Or

Unemployment rate= Number of unemployed X 100

Number unemployed + employed+ self employed

 TYPES AND CAUSES OF UNEMPLOYMENT:

TYPES AND CAUSES OF UNEMPLOYMENT

1. Structural unemployment: It occurs when the labour market cannot
provide jobs to everyone who is seeking for
a job precisely. It arises when the economy
is undergoing certain kind of changes in its
structure like:
(i) Changing demand and supply conditions.
(ii) Technological changes including
automation, leading to a substitution of
labour for machinery. More machines are
used and fewer workers are employed.
(iii) Mismatching of skills between the
unemployed and requirements of the new
job.
(iv) Restructuring of the economy such as
the economy moving from primary to
secondary sector where those working in
agricultural sector may be unemployed and
new set of skills may be required.
UK suffered structural unemployment in
shipping, textiles, steel production, coal
mining and car manufacturing. Without
training it is difficult to overcome structural
unemployment

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 POLICIES:
1. Provide new and fresh training to
workers.
2. Adopt policies to increase aggregate
demand.
3. Regional policies such as grants and
subsidies can be used.

2. Cyclical unemployment: It is also called demand deficient

unemployment or Keynesian
unemployment caused by a lack of demand.
It is linked to trade cycle and arises when
aggregate demand falls, production falls as
well. Consequently, fewer workers are
required for production. Thus, workers are
laid off. Over the period, wages also get
lower which leads to further decrease in
demand. Hence, there is serious
unemployment problem crops up.
Usually an increase in national output will
decrease demand deficient output. Since AD
= C+I+G+(X-M), a fall in any of the
component will lead to a fall in aggregate
demand. Persistent cyclical unemployment
can lead to recession.

Policies:
Adopt expansionary demand management
policies i.e. expansionary monetary and

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 fiscal policies e.g. increase government
expenditure, reduce taxes, reduce rate of
interest.

3. Frictional unemployment: Friction is anything which slows down things

or stops them from moving. Such type of
unemployment is temporary, natural and
lasts shorter than structural unemployment.
Frictional unemployment occurs because of
imperfections in the labour market such as:
school leavers or job seekers who spend
weeks to find jobs, people who quit current
jobs to look for new ones, people who get
sacked and labour immobility.
Policies:
1. More job centers can be set up to inform
people about job availability and improve
communication.
2. Government could subsidize moving costs
and reduce transport costs.
3. Provide housing and educational facilities
to children.

4. Technological unemployment: It occurs as a result of improvement in

technology where manual workers are
preplaced by machines. Thus, the use of
technology increases productivity of labour
by requiring less labour.

5. Seasonal unemployment: Economic activities tend to be higher in one

season and lower in another seasons e.g.
picking of fruits depends on climate, fishing,
and sales during festive occasions like
Christmas or New Year, construction in UK,
agriculture and tourist industry. As a result,
during off peak period the volume of these
trades tend to decline where some people
find themselves unemployed.

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 Policies:
Government can provide training to workers
to make them occupationally mobile.
6. Regional Unemployment: This type of unemployment is linked to
structural unemployment. That is, industries
like shipbuilding, textiles, coal mining, may
have grown up in particular region. Most of
the inhabitants in the vicinity will be
employed by these industries. Once these
industries decline or natural resources are
depleted, then unemployment arises
significantly in the regions. People become
massively unemployed, hence regional
unemployment.
Policies:
1. Provide low ROI to encourage business
startup.
2. Tax holidays.
3. Provide good transport and
communication systems.
7. Real wage Unemployment: This type of unemployment occurs when
the real wage is set above the market
clearing wage causing the number of job
seekers to be greater than number of
vacancies available.
8. Residual unemployment. This type of unemployment occurs because
people are physically handicapped and they
are willing to work but unable to find a job
because they are low of efficiency.
9. Casual unemployment: It is temporary and depends on the nature
of the job and industry e.g. transports
industry. The relief workers will get a job
only when the permanent worker is on long
leave or absent for several days. When the
latter comes back to work, then the former
will become unemployed until he finds a
new job.

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  POLICIES TO DEAL WITH UNEMPLOYMENT

POLICIES TO DEAL WITH UNEMPLOYMENT:

In general fiscal, monetary and supply side policies can be used to deal with unemployment.
(i) Fiscal policies:  Reduce tax.
 Increase government expenditure.

(ii) Monetary policies:  Increase money supply to boost demand.

 Decrease ROI.
 Funding.
 Open market operations.

(iii) Supply side policies:  Decrease tax and increase subsidies.

 Improve education and training.
 Undertake labour market reforms e.g.
reduce power of trade union.
 Competition policy.
 Introduce trade barriers to protect local
firms.
 Deregulation and privatization.
 Review welfare benefits.

(iv) Protectionist measures  tariff and quotas to restrict imports

and safeguard
domestic jobs.

 COSTS OF UNEMPLOYMENT:

COSTS OF UNEMPLOYMENT:

PERSONAL COSTS OF UNEMPLOYMENT: 1. Loss of income which leads to lower

standard of living and poverty.
2. Loss of self-worth and self-esteem.
3. Poor education or no education to the
children.

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 4. Loss of working habit and loss of
confidence.
5. Mental illness and great health disorders
that can lead to stress and suicides.
6. Accumulating debts
SOCIAL COSTS OF UNEMPLOYMENT 1. Problems of housing, illiteracy change in
working habits.
2. Obstacles to immigration and encourages
emigration.

ECONOMIC COSTS OF UNEMPLOYMENT: 1. Unemployment benefits increase, implying

higher costs to the government.
2. Lower tax revenue as there is less income
earners.
3. Greater opportunity costs to the
government because to finance social security
and welfare payments, the government will
have to sacrifice other projects.
4. Lower output ending up into lower standard
of living.