TOPIC 10: EMPLOYMENT AND UNEMPLOYMENT

SUB-TOPIC1: EMPLOYMENT; this refers to the relationship between two parties usually based on a
contract where work is paid for and where one party is the employer and the other is the employee.

  Employment is governed by employment regulations.

Note: (i) An employee is an individual who works part-time or fulltime under a contract of employment
whether oral or written and has recognised rights and duties.
(ii) An Employer is a legal entity that controls and directs a worker under an implied contract of
employment and pays him wage in compensation.

FULL EMPLOYMENT; this refers to a situation in which every-one who is capable of working at
the prevailing wage rate is capable of getting a job.

    OR; It is a situation in which the rate of unemployment in an economy is less than 3% of labour force.
Note: some people remain unemployed due to frictional and voluntary unemployment

Limitations to the attainment of full employment/ causes of unemployment in an economy

1. Technological development; with increased use of machines some workers are laid off and
therefore they become unemployed.
2. Poor education system/poor man-power planning/limited labour skills; the education system
releases people without practical skills and therefore they cannot create jobs after leaving school.
3. Poor land tenure system; potential investors cannot easily acquire land which makes it difficult
for them to set up firms and unable to create jobs.
4. Unfavourable changes in climatic; this limits economic activities in the agricultural sector
rendering some people unemployed.
5. High population growth rate; this leads high dependence burden which limits savings thus
limiting the capacity to invest and hence limited job creation.
6. Rural urban migration; this leads to many job seekers in urban areas yet the jobs are few
resulting in open urban unemployment.
7. Physical and mental incapacitation; such people are denied jobs by the employers thinking that
they are not productive and efficient.
8. Limited investment incentives; this leads to high cost of production which discourages
investment and thus limiting job creation.
9. Inadequate capital; this limits acquisition of factor inputs making it hard to expand firms and
even making new ones which limits job creation.
10. Limited market; this limits large scale production for fear of making losses
11. Retrenchment in order to cut cost; people are laid off which makes them to lose jobs
12. Underdeveloped infrastructure; this leads to high cost of production which limits investment
and thus limited job creation.

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13. Limited entrepreneurial skills; this limits inventions and inventions which limits investment
and thus limited jobs created.
14. Political instability; this discourages investment since investors fear to lose their lives and
property which limits creation of jobs.

UNDER EMPLOYMENT; this refers to underutilisation of labourforce by labour working for

less time than desired or engaging in jobs far below his skills.

Causes of under employment in an economy

1. Shortage of co-operant factors of production

2. Poor land tenure system
3. Political instability
4. Ignorance of people about availability of jobs
5. Poor attitude of people towards work
6. Limited skills of labour
7. Unfavourable changes in climate
8. Rural urban migration
9. High population growth rate
10. Limited market
11. Desire to retain labour force for future use

SUB- TOPIC 2: UNEMPLOYMENT; this refers to a situation in which people who are able
and willing to work at the current wage rate are unable to find jobs.

Unemployment can be voluntary and involuntary

Voluntary unemployment; this is a situation in which people who are able are not willing to
work at the ongoing wage rate yet job opportunities exist.

Causes of Voluntary Unemployment:

1. Laziness; some people decide to stay out of work because they do not want to engage in any
kind of work
2. Desire by the unemployed to live on past savings; this is because they see no reason to work
since they have accumulated wealth to live on.
3. Low wages in the available jobs; this is because the such a wage is unacceptable and
demeaning to the person.
4. Preference to live on others income; this is because such people can survive on the income
got from others.
5. Expectation of better jobs in future; this makes them reluctant to take on the available job as
they wait for a better one.
6. The unemployed being too qualified for the available jobs; this makes them to undermine
the existing jobs and thus decide to remain unemployed.
7. Preference for leisure; some individuals are reluctant to give more hours of work in order to
enjoy leisure.

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8. Poor working conditions in the available jobs; people lose interest in the job because they
cannot stand the harsh conditions.
9. High risks involved in the available jobs; people decline to take on the jobs because they fear
to be exposed to the dangers.
10. Low status esteem attached to the available jobs; this is because such jobs because are
demeaning to them.
11. Social restrictions; some traditions prohibit people from doing certain jobs e.g. Muslims
decline jobs in a bar.
12. Social ties; people get tied to families and cannot take jobs far away from their family
members.
13. Unfavourable geographical location of some jobs; one declines a job in an area with
conditions that threaten their health e.g. an asthmatic person fears to go to cold places.
14. Good economic background; such people are reluctant to acquire jobs because they have
means of survival from the family.

INVOLUNTARY UNEMPLOYMENT; this refers to a situation in which people who are

able and willing to work at the current wage rate are unable to find jobs.
Note; the causes of involuntary unemployment are the causes of unemployment

MEASURES THAT CAN BE TAKEN TO REDUCE THE UNEMPLOYMENT PROBLEM IN

DEVELOPING COUNTRIES:

1. Provide tax incentives to investors; this will reduce the cost of production and encourage
investment and thus creation of more jobs.
2. Diversify the economy; this will lead to increased level of economic activities in many sectors
hence create a variety of job opportunities.
3. Liberalise the economy; this will reduce restrictions in the economy and increase economic
activities which widen job opportunities.
4. Promote privatisation; this will lead to increased efficiency in production of the privatised
firms which will lead to increased scale of production and thus create more jobs.
5. Control population growth rate; this will reduce the dependence burden and increase savings
for investment and create more jobs.
6. Provide credit facilities; this will enable people to start up income generating activities which
will enable them to create jobs for themselves and others.
7. Reform the education system; this will enable the school leavers to acquire practical skills
which enable them to create their own jobs instead of seeking for them.
8. Modernise agriculture; this will reduce dependence on nature and ensure production
throughout the year hence controlling seasonal unemployment.
9. Encourage use of appropriate technology; this will ensure adoption methods of production
which suits the prevailing conditions in the economy and thus avoid technological
unemployment.
10. Advertise the existing job opportunities; this will create awareness about the existing job
among the unemployed and thus apply for them.

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11. Reform the land tenure system; this will ensure that people have easy access to land to
engage in production which will generate jobs.
12. Improve the political atmosphere; this will instill confidence among the investors to establish
firms since they will not be scared of losing their lives and property and hence create more
jobs.
13. Improve infrastructure; this will reduce the costs of production which will promote
investment and thus create more jobs.
14. Widen the market; this will promote investment due increased profits and thus create more
jobs.
15. Export surplus labour; this will reduce the number of jobs in the country as they go to look
for jobs in other countries.
16. Provide programmes for the persons with disabilities; this will provide skills to such people
and participate in production thus reduce residual unemployment.
17. Encourage small scale industries; these are easy and cheap to start for self-employment.

DEMERITS OF UNEMPLOYMENT:

1. It leads to misery and low levels of living; this is because the unemployed cannot afford the
basic necessities of life.
2. It leads to high dependence burden; this is because the unemployed depend on the few
relatives who are employed for survival.
3. It retards economic growth; this is because the unemployed do not participate in production
which leads to low levels of output.
4. It promotes social evils; this is because the unemployed people engage in criminal acts as a
means of getting survival.
5. It encourages rural urban migration with its evils; this is because rural people who are
unemployed migrate to urban areas get jobs.
6. It narrows the tax base; this is because the unemployed people do not earn and therefore
cannot pay taxes.
7. It leads to brain drain; this is because the country loses skilled labour as they go to other
countries to look for jobs.
8. It leads to decline in the level of acquired skills; this is because they are not practicing what
they learn in training.
9. It worsens income inequality; this is because the unemployed do not earn income and they
become poorer than the employed richer.
10. It leads to low aggregate demand; this is because the unemployed do not earn and therefore
unable to buy goods.
11. It leads to high government expenditure; this is because the government spends a lot of
money on employment creation campaigns e.g. the youth fund in Uganda.
12. It causes instability in families; this is because the unemployed especially the men fail to
provide for their families which results into conflicts.
13. It leads to under utilisation of resources; this is because the skills of the unemployed are not
utilised in production.

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14. Discourages investment in education; this is because people lose interest in education
because many of the educated persons do not have jobs.
15. Creates political tension; this is because the unemployed feel that the government is not
concerned about their plight which results into resentment of the government and they riot to
express their dissatisfaction.

TYPES OF UNEMPLOYMENT:

CYCLICAL/MASS/GENERAL/KEYNESIAN UNEMPLOYMENT; this is unemployment that

arises due to deficiency in aggregate demand for final goods especially in times of
economic recession or depression.

solutions to the cyclical unemployment:

1. Increase government expenditure.

2. Promote private investment through incentives
3. Reduce direct taxes
4. Use expansionary monetary policy.
5. Subsidise consumers.
6. Increase wages
7. Encourage exports.
8. Reduce imports.

STRUCTURAL UNEPLOYMENT; this is unemployment due to changes in demand and supply

patterns in the economy such that the skills of the available labour force are no longer relevant
in the job market hence lose the job.

     Causes of structural unemployment:

1. Changes in fashions
2. Advancement in technology
3. Limited skills
4. Exhaustion of raw materials
5. Political instability

Solutions to structural unemployment:

1. Promote economic diversification
2. Retrain workers
3. Encourage use of appropriate technology
4. Ensure political stability
5. Widen market
6. Ease acquisition of raw materials

SEASONAL UNEMPLOYMENT; this is unemployment that arises at a particular time of

the year when the demand for demand for labour is lower than usual due to unfavourable
change in economic activity.
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 Solutions to seasonal unemployment:
1. Modernise agriculture
2. Diversify the economy
3. Equip labour with multiple skills.

FRICTIONAL/NORMAL/SEARCH/TEMPORARY/UNEMPLOYMENT; this is unemployment

that arises due to labour switching jobs. This is caused by ignorance about existing jobs

Solutions to frictional unemployment:

1. Advertise the existing jobs
2. Equip labour with multiple skills

CASAUL UNEMPOYMENT; this refers to a situation where the workers are employed on    
temporary basis and as soon as the contract is over, they become unemployed.

DISGUISED UNEMPLOYMENT; this refers to unemployment where labour is involved in

production but its marginal product is zero or negligible or even negative.

  Causes of disguised unemployment

1. Limited capital
2. Poor land tenure system
3. High population growth rate
4. Ignorance about existing jobs
5. Desire to retain workforce for future use.
6. Inadequate skills of labour
7. Nepotism

Solutions to disguised unemployment:

1. Train labour
2. Improve land tenure system.
3. Advertise the jobs
4. Provide credit
5. Improve entrepreneurship
6. Control population growth rate
7. Develop infrastructure
8. Diversify the economy

OPEN UNEMPLOYMENT; this is unemployment that arises out of excess supply of labour
relative to its demand mainly arising out of rapid increase in the urban population.
Note; for causes and solutions refer to unemployment in general

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RESIDUAL UNEMPLOYMENT; this refers to a situation where individuals remain without
work even in cases of full employment due to their physical or mental disabilities

TECHNOLOGICAL UNEMPLOYMENT; this is unemployment where some workers are laid

off due to increased use of machines.

THE KEYNESIAN THEORY OF UNEMPLOYMENT; this theory states that

unemployment arises due to the deficiency in aggregate demand for final goods and services
especially in times of economic recession/ depression.
Due to low demand for final products, firms reduce output, income levels fall and investment is
discouraged and thus less labour and capital are employed.
The major remedy according to Keynes is increasing aggregate demand for goods.
This can done through:
 Increasing government expenditure
 Reducing direct taxes
 Using expansionary monetary policy
 Subsidising consumers
 Encouraging private investment
Assumptions of the Keynesian theory of unemployment:
1. Assumes a closed economy
2. Assumes a highly industrialised economy
3. Assume functional product, factor and money markets.
4. Assumes the existence of a large private sector
5. Assumes a highly monetised economy
6. Assumes of full employment of resources.
7. Assumes a functional investment multiplier.

Relevance of the Keynesian theory of unemployment to developing economies

1. At times unemployment in developing countries results due to fall in aggregate demand

for goods as assumed by the theory.
2. In developing countries there is an element of industrialisation hence the theory may be
applicable in the industrial sector.
3. In the long run as supply of cooperant factors for labour increase which increases
investment and create more jobs as assumed by the theory.
4. The investment climate affects employment level and therefore promotion of
investment will expand employment as assumed by the theory.
5. Use of expansionary monetary policy by developing countries increases purchasing
power which can increase employment level as assumed by the theory.

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 Limitations of the Keynesian theory of unemployment in developing countries

1. It is mainly concerned with demand deficiency, yet in developing countries,

unemployment is mainly from the supply side.
2. It assumes a highly industrialised economy, yet developing countries are largely agro-
base economies.
3. The theory is applicable under conditions of full employment and yet resources are
under-utilised in developing countries.
4. The solutions to increase aggregate demand are inflationary in nature.
5. Keynesian theory is based on existence of a big and strong private sector yet in
developing countries, the private sector is small and weak which makes the theory
inapplicable such countries.
6. Assumes functional product, factor and money markets and yet these are
underdeveloped in developing countries.
7. In developing countries firms do not respond effectively to increase in demand due to
structural difficulties e.g. poor infrastructure
8. The theory puts more emphasis on the investment multiplier as a contributor to
employment, yet in most developing countries, it is the export multiplier.
9. The theory is based on a closed economy, yet developing countries are open economies.
10. There is a high marginal propensity to import in developing countries which reduces
the multiplier effect thus causing unemployment.
11. It assumes a highly monetised economy, yet developing countries have large
subsistence sectors.