Topic 9: Employment And Unemployment - Economics Notes Form 5:- Economics Form 5 Topics | Form Five Notes by Tanzania Institute of Education | Economics Notes Form 5 to 6 - For A level | Economics Form Five Notes Za A-level PDF Download
Unemployment refers to the general condition in which resources are willing and able to produce goods and services but they are not engaged in productive activities.
While unemployment is mostly thought
in terms of labour,any of the other factor of production (capital,land and entrepreneurship)can be unemployed as well.
Therefore a person is said to be unemployed when he is able and willing to work but however cannot find a job at the existing wage rate.
The nature of unemployment.
Voluntary and involuntary Unemployment.
Voluntary unemployment is when a person is unemployed because he is not ready to take the existing job at the ruling wage rate, therefore under such situation the job opportunities are available but however a person is not ready to take them because of number of factors such as wage rate.
Causes of Voluntary Unemployment
Low wage rate
More desire of leisure
Expectation of a better pay alternative job
Laziness
Unpleasantness of the job
Desire to live of family wealth
Involuntary unemployment is when a laborer is willing and able to work at the ruling wage rate but cannot find an opportunity due to factors such as;
Technological advancement.
Discrimination in the labor market.
Lack of the required skills.
Climatic changes.
Casual and Persistent Unemployment.
Casual unemployment is the temporary type of unemployment which exist due to the fact that some economic activities are temporary e.g. construction.
Persistent unemployment is the type of unemployment which exists even during a boom.
Urban and Rural Unemployment.
Urban unemployment is the type of unemployment which exists in urban areas due to the fact that they tend to have a bigger population size due to rural-urban migration.
Rural unemployment is the type of employment which occurs in rural areas mainly due to the fact that some economic activities such as agriculture are seasonal in nature.
Types of Unemployment
Frictional Unemployment
This is the type of unemployment which exist when there is lack of adjustment between demand for and supply of labor.
This type of unemployment can as well be called job search or transitional unemployment.Because of the friction that exist in the labor market, there is always a time where people are moving from one job to another as a result of this they will tend to be unemployed for some time.
Seasonal unemployment
This is the type of unemployment which is as a result of fluctuations in those economic activities that are seasonal in nature eg agriculture as sometimes the seasons may be favorable but at some other time unfavorable and hence resulting into some people being unemployed eg. Agriculture after harvesting or during drought many will be unemployed.
Structural unemployment
This is the type of unemployment which is as a result of fundamental changes in the economy,such changes normally result in to a number of people being left unemployed. Eg changes in the method of production, decline in the industrial sector and so on will always result into some people being left unemployed.
Technological Unemployment
This is the type of employment which is as a result of improvement in the level of technology which results into new methods of production. When technology improves demand for labor reduces, as machines substitute laborers and addition to that some laborers might miss the skills to operate the new level of technology.
Disguised unemployment
This can as well be called hidden unemployment. This exist when a laborer is underutilized where by his performing work which is not enough to make him fully employed. Eg if work that can be done by two people is done by five people. This means that those workers are disguised unemployed.
Residual unemployment
This is a type of unemployment which is due to physical or mental disability.Firms always don’t have interest in employing such people on assumption that they are less efficient and slow in performance and hence unemployed.
Casual Unemployment
This is the kind of unemployment which is as a result of temporary or short term activities eg. Construction, tourism etc.The moment such activities are over such workers are normally laid off.
Keynesian/ Cyclical Unemployment
The type of unemployment is as a result of fall in aggregate demand in the economy during a recession or a depression. When aggregate demand falls, firms reduce their production capacity and others even close down and hence resulting into decrease in demand for labor since demand for labor is derived demand.
“Recession is the period where there is decline in economic activities.
Classical/ Real Wage Unemployment
This is the type of unemployment which is as a result of laborers demanding for high wages, therefore when the real wages increases supply for labor increases but however demand for labour decreases since such a wage is much higher as compared to the market wage and hence having surplus labor in the market which is not employed.
At the equilibrium wage rate Owe , DL = SL ;there is no surplus labor in the market but however when the wage rate increases from Owe to Ow3, demand for labor reduce but however supply for labor decrease and hence resulting into surplus labor in the market. Q1 – Q2.
Causes of unemployment in LDC’s
High population growth rate: LDC’s have high population growth rate due to high birth rate, this tends to results in to excessive labor supply which cannot easily be absorbed in production activities.
The defective education system: Is also responsible for high level of unemployment in LDC’s on the following grounds
It produces more job seekers other than job creators
it is more the original than practical
It prepares more for white collar jobs which are very few
It is not flexible with ever changing demand in the labor market
Technological progress; Many LDC’s are advancing interms of technology and therefore they are being able to come up with techniques of production.eg. the increasing use of computers such progress has resulted into decrease in demand for labor
Lack of serious manpower planning: Many LDC lack serious manpower planning whereby as they train labor,they don’t project employment opportunities that can be created as a result of this,they tend to produce excessive labor in different professions.
Political Instabilities: Many LDC’s have experienced political instabilities as a result of wars, this has resulted into contraction in many economic activities as a result of investors with drawing themselves from various activities.
Climatic changes is responsible for unemployment in LDC’s due to the fact that they are many major economic activities that depend on the prevailing climate like agriculture, tourism, mining etc
Poverty is one of the major problem that is experienced in many LDC’s and it has contributed alot to unemployment in the following ways:-
Low level of education.
Low demand of goods and services.
Lack capital engaged in different economic activities.
The inadequate information system in the labor market is also responsible for unemployment in LDC’s as it contributes to labor immobility.
Effects of Unemployment
POSITIVE EFFECTS
It helps to control inflation (Demand Pull) due to low demand of goods & services.
It help to lower the cost of production since during unemployment the employee’s fear to ask for higher wages.
It helps to improve discipline of the workers as those employed tend to look themselves as being lucky and hence more effort.
It helps firms to recruit the best workers due to higher turn up for application
It result in to the promotion of entrepreneurship since the unemployed tend to be more creative and innovative on how to service.
NEGATIVE EFFECTS
It lowers the standard of living due to lack of income.
It increases the dependents burden which lowers saving capacity
Increase in social evils such as theft, prostitution etc
It increases the burden to the government eg. in providing unemployment benefit
It increases destruction of natural resources due to poverty eg. cutting of trees, construction in swamps etc.
It lowers the tax base and hence the government realize less revenue from taxation.
Unemployment also results into income inequality and hence creation of classes.
Unemployment also results into decline in the size of a national income by the amount that would be produced by the unemployed
Measures that can be taken to control unemployment in LDC’s
Provision of credit.
The government should set up a system through which soft loans are extended on soft conditions to those people who are unemployed in order to startup various economic activities.
Population growth control
The government should as well come up with measures in order to control population growth rates which are responsible for excessive labor supply; this can be done through a number of population growth control measures such as family planning.
Transformation of rural areas
The government should as well come up with measures in order to improve rural areas. Eg. through developing the social and economic infrastructure, modernizing of agriculture etc which will help to reduce rural-urban migration which is a major cause of urban unemployment.
Making reforms in the education system.
Subsidizing of school fees.
Increasing the number of education institutions especially higher ones.
Increasing vocational institutions etc; which will help to increase the level of literacy which increase a person’s opportunity to be employed.
The government should as well encourage the establishment of small scale industries since they require less capital which many can afford mainly use labor intensive methods of production.
Diversification of economy
There is also need for the government to come up with measures in order to create as many economic activities as possible. This will help a lot to deal with seasonal unemployment whereby in case of decline in one of the economic activities people can switch cover to other public sector and so on.
The government should as well set up a communication sector through which information is provided to the general public about the vacancies that exist in various regions the private sector, public sector and so on.
The government should also aim at maintaining political stability which will help to attract both local and foreign investors which will help to promote economic activities and hence creation of more employment opportunities.
Measures that have been taken by the Tz government in order to control unemployment
Education reforms.
Subsidized school fees (primary & secondary)
Increased number of education institutions
Focus on higher education
More vocational institutions eg VETA
The government through SIDO has promoted small scale industries.
Use of labor intensive
Easy to start (little capital)
Government has also come up with population growth control measures such as family planning which is provided free in government health institutions
The government has joined trading blocs such SADC, EAC, etc to allow Tanzania to easily move and work in other countries
The government is trying its level best to maintain political stability in order to attract both local and foreign investors hence creation of more employment opportunities
The government has carried out privatization which has opened up doors to people to engage in economic activities.
The government has also tried its level best to promote rural areas by developing both social and economic infrastructures in order to reduce rural-urban migration
The government has increased its expenditure on agriculture under Kilimo Kwanza in order to promote agriculture which is the leading sector
The government has also tried its level best to diversify the economy by developing more economic activities eg. agriculture,mining,fishing,manufacturing etc.
The government laid up strategies of increasing provision of credit to the public
Supported the operations of SACCOS
The government increased TIB funds
The government has encouraged banks to soften their lending conditions.
UNDER EMPLOYMENT
Is a measure of employment and labour utilization in the economy that looks at how well labour force is being utilized in terms of skills, experience and availability to work.
Labour that falls under the underemployment classifications includes those workers that are highly skilled but working in low paying jobs and part-time workers that would prefer to be full time.
This is the different from unemployment in that the individual is working but isn’t working at their full capacity.
In those firms where there is under employment withdraw of some laborers cause no effect on total product.
Causes of under employment
Lack of enough job opportunities which result into opting for work which is not in line with their qualification.
Lack of adequate supervision which result in laziness among laborers.
The need for firms to pressure labor for future use.
Poor payment to laborers which tends to make them perform less as compared to their capacity.
Natural and Full Employment
Full employment refers to a situation where by all those people who are willing and able to work at the prevailing wage rate are employed.Full employment is a situation when the number of unfilled vacancies is equal to the number of people who are out of work.
Also full employment can refer to as the condition that exist when all available resources are engaged in the production of goods and services.In other words;all resources could be used for production are being used.
This is indicated in production possibilities analysis by producing a combination of goods that places the economy on the production possibility curve (PPC)
Note:
There is normally a misconception that full employment means a situation when all people are employed. It is very difficult to have all people employed at a particular time due to a number of factors such as:-
There are those people who are physically disable and hence not able to perform normal work.
There are some people who survive on their wealth and hence no need to work.
There are some adults who are in full time education.
Structural changes such as change in technology, change in taste and preference can as well result into people being unemployed at a particular time.
Seasonal changes can as well affect some activities such as agriculture, tourism and hence some people being unemployed at a particular time.
Frictional factors which results into people being between jobs, eg. when a person is moving from one location to another, when changing employees,when people are entering the labour market from school.
Conditions necessary to achieve and maintain Full employment
There must be adequate expenditures both public and private in order to create sufficient income, demand and hence more investments and hence creation of more employment opportunities.
The location of industries should also be controlled where by industries are spread over various parts of the country in order to ensure employment opportunities in all areas.
There must be organized mobility of labor where by labor can easily move both occupationally and geographically, eg. labor should easily move from a declining to an expanding industry.
There is also need to control inflation as it affects investments and demands.
There is also need to have appropriate man power planning in order to easily absorb labor in the employment opportunities available.
There is also need to have continuous career progress among laborers so that they can easily stand the ever changing structural changes in the economy.
Problems of full employment
The danger of inflation is increased. There are two reasons for this:-
Over investment is likely to occur
Due to changes of inflation, the government may be inclined to undertake too much investment and so a connection of inflation will be induced, with the demand for labor greater than supply
The wages policy of the trade unions
Full employment puts the trade unions in a strong bargaining. At times of depression, trade unions have to submit to some reduction in money wage and wait for times of boom to secure wage increases for their member. During over full employment, there is shortage of labor if the wages are high, the cost will be passed to consumers and hence rise in prices, which intern give rise to further demand for wage increase.
A distributional of resources may occur, another serious danger is that economic resources will not easily move from one occupation to another. If economic forces are not allowed to determine the distribution of factors among different occupation, the assortment of goods produced will not be that which the community as a whole prefers.
The quality of labor may fall.This is due to high demand of labor makes it possible for the least efficient workers to secure employment and also the removal of losing one’s job may often subconsciously cause many workers to put forward less effort,some many deliberately slack
Natural Unemployment/ Equilibrium rate of Unemployment
Natural unemployment can as well be called;Equilibrium unemployment.Therefore, Natural Unemployment is the combination of the functional structural unemployment that that persist in efficient,expanding economy when labour and resource markets are in equilibrium.
Natural unemployment exist when economy is at full employment,which for practical purpose is defined as the condition in which the quantity of resources demanded is equal to the quantity of resources supplied.Most important for policy purpose,natural employment exists with stable price, that has no inflation.
Non accelerating inflation rate of unemployment (NAIRU)
This is the type of unemployment which exists when the labor market clears with demand for labor is equal to supply of labor.
Natural unemployment exists at full employment when the lab our market is at equilibrium.
Types of Natural Unemployment includes:-
Frictional unemployment
Seasonal unemployment
Structural unemployment
Types of employments
Full time employment – This is when a person works about 38 hours per week and receive full weekly wages and conditions for working the hour identified in the award and are paid for holding/ sick leave
Casual employment – Is the type of employment in which employees are engaged to work on an hourly or daily basis. It is a short term employment which involves irregular hours and is not paid for holiday/ sick leave.
Part time employment – is a form of employment that carries fewer hours per week than a full time job. Part time employees area often hired to help with increased work demand or seasonal industry fluctuation that sometimes occurs in certain industry.
Keynesian Theory of Unemployment
This theory was put forward by Lord Keynes to explain the causes of cyclical unemployment. According to him unemployment is as a result of deficiency in aggregate demand of goods & services.
When there is lack of enough demand of goods & services in the economy firms reduce on their production levels. And as a result of this decrease in demand for labor since demand for labor is derived demand.
Keynes suggested a number of measures which can be taken in order to deal with such kind of unemployment and among them are the following:-
Use of expansionary fiscal policy by increase in government expenditure and reducing direct and indirect tax in order to increase aggregate demand for goods & services.
Encourage exportation in order to increase the foreign of domestic goods.
Improve the investment environment by improving economic infrastructure provide incentives to invest and so on.
The Relevance of the Keynesian theory of unemployment to LDC’s
The increase in government expenditure as suggested by Keynes, will instead result in to inflation since in many LDC’s there is instead deficiency of supply of goods & services
Keynes only looked at cyclical unemployment but however in LDC’s unemployment is more than that eg. seasonal unemployment structural unemployment
Keynes did not put in consideration the structural and institutional problems in LDC’s that contribute to unemployment in LDC’s such as poor transport & communication network poor land tenures
Keynesian Theory of Unemployment
This theory was put forward by Lord Keynes to explain the causes of cyclical unemployment. According to him, unemployment is as a result of deficiency in aggregate demand of goods & services.
When there is lack of enough demand of goods and services in the economy forms reduce on their production levels. And as a result of this decrease in demand for labor since demand for labor is derived demand.
Keynes suggested a number of measures which can be taken in order following:-
Use of expansionary fiscal policy by increase in government expenditure and reducing direct and indirect tax in order to increase aggregate demand for goods & services.
Use of expansionary monetary policy in order to increase money supply and hence increase in aggregate demand and the level of investment.
Encourage exportation in order to increase the foreign of domestic goods.
Improve the investment environment by improving economic infrastructure, provide incentives to invest and so on.
The Relevance of the Keynesian theory of unemployment to LDC’s
The increase in government expenditure as suggested by Keynes, will instead result in to inflation since in many LDC’s there is instead deficiency of supply of goods & services.
Keynes only looked at cyclical unemployment but however in LDC’s unemployment is more than that eg. seasonal unemployment, structural unemployment.
Keynes did not put into consideration the structural and institutional problems in LDC’s that contribute to unemployment in LDC’s such as poor transport & communication network poor land tenures.
Increase in money supply in LDC’s will not necessary result into increase in aggregate demand in LDC’s due to the fact that many people in LDC’s have a tendency of holding money.
Investment in industry in LDC’s has helped so little to reduce unemployment since many industries are capital intensive. However to a small extent the Keynesian theory of unemployment has some relevance to LDC’s on the following ground;
In many LDC’s domestic demand of goods is still very low due to a high level of poverty and hence contributing to unemployment.
The export sector of LDC’s is still very poor and hence low demand of the domestic goods in the foreign country.