Employment and Unemployment:

Exam Practice 25
a) Frictional unemployment is when workers are unemployed for short periods of time
between jobs. Frictional unemployment can be bad when workers do not have
enough information and resources to choose a good job for themselves, sometimes
leading to them living in poverty despite having a job. However, it can be good if the
unemployed have suitable resources and information that help them find a job that
maximises their utility in a shorter period of time. In the case of Ethiopia, frictional
unemployment should be increased by reducing the cost of searching for
employment, as it is very costly for Ethiopians with transportation to job centres
taking up 25% of their income. If there were cheaper infrastructure and lower
transportation costs, there would be less unemployment as people would be
matched to the right job more efficiently.

b) In Ethiopia, unemployment is a severe problem. Unemployment is when individuals

who are willing and able to work are unable to find a job. Ethiopia has high
unemployment due to various reasons, overall being the threat of technological
advancement replacing labour and the difficulty for potential workers to find jobs.
Specifically, this would be structural/technological unemployment. Structural
unemployment is when the pattern of demand and production changes, leaving
workers unemployed in labour markets where demand has shrunk, such as
technological advancement or lack of education and training.

Referring to the data, we can see that technological advancement is threatening the
already low employment rates in Ethiopia. The Oxford Martin School found that in
2013 85% of jobs were at risk of being lost due to technological advances. The
technological advances would mean an increase in fixed capital, replacing the
workers and thereby decreasing the demand for labour. Firms would have strong
incentive for automation as it is proven to be more efficient and maintenance costs of
fixed capital (machinery) are lower than the costs of providing wages to workers.
Another example of structural unemployment in Ethiopia would be lack of education
and training, as it is a developing country without a stable education system. This
means that the potential for a larger labour force is not being maximised due to
various factors such as lack of infrastructure for education, lack of teachers, girls
leaving school before the age of twelve, and overall lack of higher and vocational
education. Furthermore, there are large costs involved with searching for
employment, especially in the city of Addis Ababa which is a major labour hub. The
transportation costs to job centres make up 25% of income, meaning less people can
spend this money to travel to the job centres and those who do cannot commute
often.

Taking into account these factors, technological advancements may be detrimental

or monumental depending on the perspective and area of investment and
development. In the case of transportation to job centres, technological
advancement would be beneficial as if sustainable and cheap transportation such as
railways and bus lines were to be established it would greatly increase mobility
throughout the city, promoting more economic activity and also accessibility to job
centres. From another perspective, if education were to be made accessible online
 would be an almost immediate solution to the lack of infrastructure needed for
education. Perhaps foreign companies who train their own industries could have
outreach in Ethiopia and offer training programmes with qualifications. With
education and training, there will be an increase in human capital and there will be
more skilled workers, leading to higher employment rates as those with education
and experience are more likely to be employed as they are skilled workers and more
efficient.

On the other hand, education would likely still be very expensive and inaccessible
even if it is online, and heavy government spending would be needed in order to
establish the infrastructure for better and cheaper public transport systems in the
city. Furthermore, technological advancements may not be beneficial overall due to
the fact that firms are searching for maximum efficiency and will opt for machines
rather than human labour. This is another form of structural unemployment and is
almost unpreventable unless Ethiopia forms other industries apart from
manufacturing. Considering Ethiopia is still a developing country it may not have the
resources to provide further education for potential workers who could work in the
management of logistics and the management of the machinery.

In conclusion, technological advancement would be super beneficial in some areas

of Ethiopia’s economy such as in the transportation sector and the labour market. It
would be beneficial in these areas as if they were to be invested in, more jobs would
be needed in order to establish these new and improved systems such as workers in
public transport and at job centers or curators of online job hunting websites.
However in the long run, more jobs would be lost to technological advancements in
the manufacturing sectors which are most dominant in a developing country like
Ethiopia as there are many foreign businesses who search for cheap labour in
developing countries. Furthermore with the costs of installing modernised
transportation it would likely even be more expensive for the population of the city to
travel and this paired with the low wages wouldn’t lead to any improvement in
unemployment.

a)