1 UNEMPLOYMENT Haresh Thakkar

2 Unemployment - Meaning What is unemployment ? In general sense, unemployment is a situation in which those who are able and willing to work at the prevailing wage rate do not find job. A person who is :- a) Physically Fit b) Mentally sound c) Well qualified d) Willing to work at prevailing wage rate BUT DOES NOT GET JOB, THIS SITUATION IS CALLED UNEMPLOYMENT

3 Unemployment Unemployment can be broadly classified under two broad categories :- Voluntary : A person who is physically fit, mentally sound and well qualified, but is unwilling to work at prevailing wage rate. Involuntary : A person who satisfied all the above conditions and is willing to work at the prevailing wage rate and yet jobs are not available. Involuntary unemployment is also known as FORCED unemployment.

4 Measurement of Unemployment Labour Force of the country consists of those people in the age group of years who are employed and those who are unemployed and looking for a job. LABOUR FORCE = No of employed + No of unemployed. Example :- India’s population – 115 Crores. If divided in different age group Out of age group of 15 – 60 years, approx. 40% (25 Crores) are either :- Physically Handicapped Mentally Retarded Men and Women who do not want to work This leaves approx. 40 crores who now can be employed (65 – 25 = 40 Crores)

5 Labour Force Labour Force (40 Crores) 30 Crores 10 Crores (Employed) (Unemployed) Therefore, Rate of Unemployment (%) = Labour Force – Employed x 100 Labour Force = 40 – 30 x Rate of Unemployment = 25%

6 Types of Unemployment Seasonal Unemployment Unemployment caused because of the seasonal nature of the employment – Tourism, Skiing, Cricketers, Beach Lifeguards. e.g. Employment opportunities for beach lifeguards are more in Summers as compared to Winters due to the seasonality associated with beach going people.

7 Types of Unemployment Structural Unemployment Unemployment caused as a result of the decline in Industries and inability of former employee to move into jobs being created in new industries. e.g. As the coal industry declined, many miners had difficulties utilizing their skills to find work in new industries such as IT and SERVICE SECTOR work.

8 Types of Unemployment Cyclical Unemployment Fluctuates with the business cycle, increasing during contractions and decreasing during expansions. All firms need fewer Workers. Low total demand in the Economy A result of a ‘recession’ or ‘slump’ in the Economy

9 Types of Unemployment Technological Unemployment Unemployment caused when development in technology replace human efforts e.g. Manufacturing, Administration etc. LOOK NO WORKERS !!! ROBOTS RULE WHERE HUMANS ONCE STOOD !!!

10 Types of Unemployment Disguised / Hidden Unemployment Where output remains the same but number of people employed to complete the Job is high e.g. In Agriculture Sector Father, Mother, Son, Daughter working but the output remains same. Underemployment People are counted as employed even if they can find only part-time jobs OR Are vastly overqualified for their job

11 Concepts of Unemployment 3 Concepts of Unemployment adopted by NSS (National Sample Survey) Usual Status of Unemployment Current Weekly State of Unemployment Daily Status of Unemployment

12 Inflation and the rate of unemployment The relationship between inflation and employment has been a contentious issue. The neoclassical economists held the view that inflation does not affect the level of employment. However, in A. W. Phillips, a British economist and a Professor at London School of Economics, brought out a study of the relationship between unemployment and the change in money wage rates in the British economy during the period from 1862 to Phillips found Inverse relationship between the rate of change in the money wage rate and the rate of unemployment.

13 Inflation & Unemployment

14 Phillips Curve Phillips revealed in his study that there exists an inverse relationship between the rate of change in the money wage rate and the rate of unemployment. He presented the inverse relationship between the change in money wage rate and the rate of unemployment in the form of a curve, called Phillips curve. The general conclusion that is drawn from Phillips empirical finding is that a rise in money wage rate reduces the rate of unemployment and a fall in money wage rate increased the rate of unemployment.

15 3 Factors of Phillips Curve Three factors may help to explain shifts in the Phillips curve: Structural changes in the labor force – 1970s: Increase in the labor force participation rates of women and teenagers who, at the time, had higher unemployment rates than men. – 1980s & 1990s: Rate of unemployment for women fell, the movement of teenagers into the market reversed itself, and an increase in the rate of involuntary part-time employment. Cost-push inflation – 1970s & 1980s: Brought about by energy price increases Eligibility for government transfer payments – Availability of transfer payments increases unemployment, and vice versa.

16 Why Phillips Curve Relationship Why is there an inverse relationship between the rate of inflation and the rate of unemployment ? Or, how does inflation reduce the rate of unemployment or how does it promote employment ? The inverse relationship between the wage rate and the unemployment rate can be explained by both the demand-pull and the wage push factors. Demand Pull Factor :- Considering the demand pull factor first, Phillips postulated that during demand-pull inflation, demand for Labour increases with an increase in prices. He argues, “When the demand for labour is very high and there are very few unemployed we should expect employers to bid wage rate up quite rapidly, each firm and each industry being continually tempted to offer a little above the prevailing rates to attract the most suitable labour. Therefore with the increase in the money wage rates, the rate of unemployment decreases. Wage-Push Factor :- Wage-Push Inflation is caused by the autonomous demand by the labour unions for increase in wages in excess of increase in labour productivity. The lower the rate of unemployment, the greater the union’s power to push the wages up and vice versa. Also, the period of low unemployment is generally the sign of ‘buoyant’ product market and high profits. Therefore employers are willing to pay higher wages. There is fast upward movement in wages and decrease in unemployment.

17 Cost of Unemployment Personal Cost Loss of paycheck Loss of self-esteem Increase in stress related psychological problems Increase incidents of crime, suicide, & mental illness. Economic Cost Loss in output

18 THANK YOU By Haresh Thakkar