15.

UNEMPLOYMENT AND JOB CREATION

Unemployment is whereby able bodied people who are willing to work and are looking
for jobs but cannot find any. People are unemployed when they are able and willing to
work but cannot find a job.Unemployment can be expressed either as a number.e.g. 2,5
million or as a percentage e.g. 30%.

Unemployment rate = Unemployed persons x 100

Labour force

Labourforce

It refers to those in employment plus those unemployed. Thus for 22.5 million
people were employed and 2.5 million people were unemployed, the unemployment
rate would be

2,5 million x 100

22,5 +2,5 million = 10%

In Zimbabwe the level of unemployment is estimated to be over 80%.

Types/Causes of Unemployment

 Frictional

 Structural

 Cyclical/Demand Deficiency

 Technological

 Seasonal

 Voluntary

 Residual

Frictional unemployment

It arises from geographically and occupationally immobility of labour. Labour is not

perfectly geographically mobile. Some people remain unemployed despite the
availability of jobs in other parts of the country, where they are not willing and prepared
to go and work or cannot afford to travel. Labour is also not perfectly occupationally
mobile. Some people remain unemployed despite the fact that there are jobs available
requiring skills and qualifications will they do not possess. It also arises when workers
are between jobs, where they do not take the first job offer, by spend time looking for
better paid job.

Policies to reduce frictional unemployment include:

Lower real values of unemployment benefit- If the government reduced the real value of
unemployment benefits, or limited the duration of a claim, search times between jobs
could be reduced even further as workers would have to quickly take on new positions
before their financial situations deteriorated.

Improve job information- Improving the flow of information with regards to the availability
of particular employment is one such measure. This can be done by establishing public and
private employment agencies who are responsible for linking potential employee to their
potential employers.
 Relocation of industries and services

 Advertising in public media e.g. national newspaper

Structural Unemployment

It arises from imbalances or fundamental changes in the structure of the economy or

company. Over time the demand and supply patterns changes. Some industries expand
and others contract/decline and cut down the labour requirements. A company can
restructure and downsize it worker force or eliminate some departments. It also arises
when workers lose their jobs because of demand switches from their industries to more
competitive foreign industries. In many developed economies manufacturing industries
move to developing countries where labour costs are lower. For example many USA
companies have relocated production facilities to China where labour is cheaper.

Measures to correct structural unemployment

Regional policy incentives-Gives grants and subsidies to firms to locate in areas of

high unemployment. However, this does not solve the problem of occupational
immobility. Often regional policy requires extra retraining schemes to give workers the
relevant skills to allow them to take up new jobs.
Worker training-Spending on training schemes to re-skill the unemployed through
investment in vocational education or guaranteed work experience for unemployed
"outsiders" in the labour market.
Improving geographical mobility of labour-The government could provide grants or
low cost housing to encourage workers to move to other regions where there are jobs.
The problem with this policy is that people are inherently immobile as they are often
bound by family and social ties.
 Change the education curriculum to meet the requirements of industry
One approach is to simply leave the problem of structural unemployment to the market.
Some economists argue that intervention slows the natural reallocation of resources to
high growth areas and only makes the problem worse. In areas of above average
unemployment it may make some sense to allow wage levels to fall to attract new
capital into an area.

Cyclical/Demand Deficiency Unemployment

It arises as a result of lack of or inadequate aggregate demand in the economy.

Aggregate expenditure will be insufficient to achieve full employment, resulting in a
deflationary gap. There will be no need for firms to employ more workers because of
low demand for their products. Demand for most goods and services falls, less
production is needed and consequently fewer workers are needed, wages are sticky and
do not fall to meet the equilibrium level, and mass unemployment results. Demand
Deficient Unemployment is associated with an economic recession or a sharp
economic slowdown

Measures to correct cyclical/ demand- deficiency unemployment

Increased Government Expenditure- The Government can raise the level of its own
spending. The government could raise current expenditure (for example raising pay
levels in education and the health service). Sustained economic growth provides a
platform for more jobs to be created in the economy.
Lower Taxation- A reduction in direct taxation increases consumers' disposable
income and should boost household spending. The effect may be greater if taxes are
cut for people on lower than average incomes. These tax-payers are likely to spend a
greater percentage of their disposable income.

Lower interest rates-A relaxation of monetary policy through lower interest rates
encourages the demand for credit, reduces saving and increases consumers' real
'effective' disposable incomes; all of which will boost consumption and demand. It may
also encourage firms to invest, as the marginal cost of investment will fall.
Seasonal Unemployment

It occurs in those industries with marked seasonal patterns of demand like tourism,
construction and agriculture.They tend to flourish in certain time of the year, therefore
demand for workers fluctuates according to time of the year. Workers are out of work
between periods of employment, like actors and construction workers.

This type of unemployment is mainly experienced in the following industries;

 Agriculture

 Tourism

 Retailing and

 Construction
The diagram above illustrate that more workers are demanded during the season (Q2).
Off season time will result to a decrease in demand of labour from Q2 to Q1 .This fall in
demand for labour will result to seasonal unemployment measured by distance Q2 to
Q1.

Measure to correct seasonal unemployment

 Introduction of irrigation schemes.

 Training workers so that they will be flexible.

 Government financial assistance to encourage self-employment.

Technological Unemployment.
This arises from the introduction of better methods of production. Caused by
introduction of labour-saving machinery i.e. where prodcers shift from labor intensive
systems to a capital intensive systems of production.Manual labour replaced by
machines. for example ATMs in banking.
Voluntary Unemployment
This is caused by people who deliberately do not want to work. It is common in
developed countries where some people can inherit a lot of wealth from their parents or
where they can get unemployment benefits.

Classical unemployment /real wage unemployment

Classical or real-wage 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. Many economists have argued that as unemployment increases, the more
the government intervenes into the economy to try to improve the conditions of those
without jobs. For example, minimum wage laws raise the cost of laborers with few skills
to above the market equilibrium, resulting in people who wish to work at the going rate
but cannot as wage enforced is greater than their value as workers becoming
unemployed. Laws restricting layoffs made businesses less likely to hire in the first
place, as hiring becomes more risky, leaving many young people unemployed and
unable to find work.
Hard core unemployment

EFFECTS OF UNEMPLOYMENT

Loss of output -The opportunity cost of each unemployed person is his or her foregone
output. If labour is unemployed the economy is not producing as much output as it
could. An economy with high unemployment is producing within its production
possibility frontier. The hours that the unemployed do not work can never be recovered.
Loss of human capital -The unemployed labour gradually loses its skills because skills
can only be maintained by working. Unemployment wastes some of the scarce
resources used in training workers. Furthermore, workers who are unemployed for long
periods become de-skilled as their skills become increasingly outdated in a rapidly
changing job market. This reduces their chances of gaining employment in the future,
which in turn increases the economic burden on government and society.
Fiscal cost to the government - Lost tax revenue-Growing unemployment means less
direct and indirect tax revenue because unemployed people stop paying income tax and
their spending will full considerably. This rise in government spending along with the fall
in tax revenues may result in a higher government borrowing requirement (known as a
public sector borrowing requirement)
Social Costs - Unemployment brings social problems of personal suffering and
distress and possibly also increases in crime such theft and prostitution.
Areas of high unemployment will also see a decline in real income and spending
together with a rising scale of income inequality. As younger workers are more
geographically mobile than older employees, there is a risk that areas with above
average unemployment will suffer from an ageing potential workforce - making them
less attractive as investment locations for new businesses.
Increasing inequalities in the distribution of income

Much lower income. The unemployed have to rely on unemployment benefits and they
will see a drastic fall in income. Unemployment is one of the biggest causes of home
repossessions (when you fail to keep up with mortgage payments) Losing your home is
one of most traumatic events.
Psychological costs. Unemployment is one of the biggest causes of stress. Without
work, people feel a lack of purpose and low self-esteem. This can precipitate health and
psychological problems.
Social Problems. Unemployment can create a feeling of alienation from society. When
you have a high unemployment rate amongst a particular group (region, ethnicity, age).
Feelings of social exclusion can be exacerbated.

Higher Government Borrowing. A rise in unemployment leads to lower tax revenue (less
income tax) and higher government spending on benefits. This may require lower
spending elsewhere in economy.
Negative Spiral. Higher unemployment will lead to lower spending in the economy
leading to lower growth. The threat and fear of unemployment may be sufficient to
reduce spending.

Lost tax revenue

Unemployment means that there is a lower revenue gained from income tax. The
potential tax revenue could be spent on improving healthcare or education. Such
spending would increase the productivity of the country and the general living
standards.

Government spending on benefits

Spending on job seeker’s allowance will go up the more people there are that are
unemployed. This represents a larger opportunity cost which could limit the
spending on key areas such as health.

Pressure on other forms of government spending

Greater unemployment may also lead to more crime or mental health problems,
which requires more government spending to solve.

Costs to the unemployed

The unemployed may suffer from social disadvantages and will suffer from a loss of
income. There may be increased arguments within households and/or a sense of
worthlessness and aimlessness. Children of the unemployed will struggle at school
because they may have less access to tools needed at home.

Hysteresis
This is unemployment causing unemployment. The longer someone is unemployed,
the more likely that employers will see them as unemployable. This is because
staying out of work for a long time indicates that they may not be good workers.
Also, employers may become rusty and out of touch with advances in methods and
technology

Summary

1) High poverty levels.

2) High moral decadence and crime rate.

3) Forced migration.

4) Political instability.
5) Personal psychological torture..

6) It creates a fiscal drag net where those who are employed are overburdened by high
taxes to sustain the government.

MEASURES TO CONTROL UNEMPLOYMENT

Following steps must be taken by the people and government to control the problem
of unemployment & under-employment:

1. Establishment of Employment Offices

There is not any single office for the information about employment opportunities in
Zimbabwe. More and more employment offices should be established these would
cause in reduction in unemployment

2. Population Control

Fast growth rate of population should be controlled. Due to population control there
will be more employment opportunities and reduction in unemployment.

3. Capital Accumulation

Aggregate saving and investment should be increased to raise the level of capital
formation. This will result in promoting the level of income and employment in the
economy.

4. Growth of Industrial Sector

Government should provide basic infrastructure to established industries is rural

areas. Growth of industrial sector is needed to reduce unemployment.

5. Growth of Agricultural Sector

Agriculture is the main sector of our economy. It provides more jobs to population. It
is necessity to establish it at commercial basis to provide more jobs to unemployed.

6.Technical Education and Training

Technical education and training is necessary to produce efficient labour force.

7. Provision of Self-employment

People and government should maintain self-employment. In this case government

should provide them credit facilities.

8. Growth of Small-scale and Cottage Industries

 Government should encourage the setting-up of small industries, particularly in rural
areas. Government should provided subsidies and infrastructure to establish small
industries.

9. Use of Labour Intensive Technologies

It is compulsory to use the labour intensive technologies to reduce the

unemployment.

10. Reduction in Retirement Period

Retirement age is 60 years in Zimbabwe. It should be reduce to 55 years to provide

more employment opportunities.

11. Subsidies to Private Sector

Stable government is required to subsidize the private sector. Government should

help the private sector to development. It will create more employment chances.

12. Job on Merit

Government should eliminate the nepotism and favouritism. Employment

opportunities should be provided in accordance to skill and ability.

13. Provision of Credit Facilities

Government should provide loans to the unemployed skilled labour to promote self-
employment. Provision of credit facilities should be provided to reduce
unemployment

Enterprising

Advantages of being an entrepreneur

Create your own destiny - Entrepreneurs are their own bosses.

They make quick decisions, choose whom to do business with and 'what work they will
do
and decide what hours to work, as well as what to pay and whether to take vacations.

Reach your full potential- Entrepreneurs can do what they are passionate about.

Reap impressive profit – Entrepreneurship offers a greater possibility of achieving

significant financial rewards than working for someone else.

Contribute to Society and be recognised for your efforts - most entrepreneurs help the
local economy, but some, through their innovations, contribute to society as a whole.
One
example is entrepreneur Strive Masiyiwa, who co-founded Econet and helps the
Zimbabwean
community through offering scholarships. Corporate Social Responsibility [CSR]

Collect prestige - There is prestige in being the person in charge.

• Employment creation
• Infrastructural development
• Revenue to the government through taxation to the ZIMRA
• Raise standards of living
• Economic development
• Technology is introduced in to the country
• provide competition to large organisations hence quality products

Disadvantages of being an entrepreneur

• The uncertainty of income - There is no guarantee of earning money and the income
can
vary daily, monthly and yearly, unlike a salary, which is fixed.

• The risk of losing entire investment - If the venture is not successful, the resources
that were
invested go to waste.

• The long hours and hard work - This is especially the case when establishing the
venture.
An entrepreneur has no set times to start and finish work. They work as long as the
situation
demands.

• The high levels of stress - This results from the desire to see the project succeeding
and the
desire not to waste time and money.

• Maybe overworked
• May evade payment of taxes
• Some are engaged in illegal business dealings e.g. selling drugs
• May be involved in smuggling of illegal products
• Some may be involved in political issues

The importance of enterprise skills to the economy

• Entrepreneurs create new businesses. In many cases, entrepreneurial activities

increase
competition and, with technological or operational changes, it can increase productivity
as
well. Small businesses broaden the base of participation in business by ordinary people
in Society in the process this creates more jobs. Small businesses are more likely than
large companies to produce specialty goods and services and custom-demand items.
Innovations improve the quality of life by multiplying consumers' choices. They enrich
people's lives in numerous ways by, for example, making life easier, improving
communications, providing new forms of entertainment and improving health care.
Entrepreneurial behaviour drives innovation and growth for the economy and for
individual
companies since it involves a willingness to take advantage of unexploited
opportunities.
Thus, entrepreneurs play a crucial role in mobilising resources and promoting economic
growth and socioeconomic development. Tills is particularly true in the developing
world,
where successful small businesses are primary engines of job creation and poverty
reduction.

Indigenisation policy

Indigenisation is a policy in which local people are allowed to own and control the
means of production and participate in the ownership of industries and companies
within a country.Reduce pressure on formal employment seeking. This will mean that as
more people are leaving the formal job seeking the supply for labour falls and wage
rates increases.The increase in wages lure more people into the labour market and
hence eliminates voluntary unemployment.
As we indigenise those people who could not get employment on the formal market due
to low skills. These people will be finding alternatives ways to work using personal skills
in indigenous industries. Thus solving structural unemployment. More activities become
commercialized under indigenisation and the output will increase hence increase the
measured output. Increase in output simply increase employment of resources. From
the Keynesian theory cyclical unemployment falls when output increases