Unemployment

“Those of working age who are without work ,but who

are available for work at current wage rate”

• Labor force- those in employment plus unemployed

• Unemployment rate
If 22.5 million people were employed and 2.5 million
people were unemployed,
The unemployment rate 2.5/22.5+2.5 = 10%
 Unemployment
• Structural Unemployment – change in the
pattern, methods of production, regional unemployment

• Cyclical unemployment
• Frictional unemployment
• Disguised unemployment
• Seasonal Unemployment
 Frictional Unemployment
Solution
• Frictional unemployment can be reduced by bringing better
information about jobs to the worker. Job matching services
on the internet, such as Simply Hired, Monster, and
CareerBuilder accomplished this. But it still takes time to write
a compelling resume, search for the right job, and apply. Job
seekers must also wait for a response and go through the
interview process. Many job seekers find the best source of
new jobs is through their professional network. Online
services such as Facebook, Twitter, and LinkedIn have helped
in professional networking.
 Evils of Unemployment
• Economic,social,political,and moral
disequilibrium
• Waste of resources resulting in the reduction
of national income
• Low standard of living
• starvation, Poverty, Misery, violence,
frustration, tension etc.
• Constant threat to the progress of the nation
 Remedial Measures
• Increase employment opportunities
• Create subsidiary occupation
• Educate labors and mobilize them through
labor exchange
• Adopt suitable monetary and public policy
• Rapid Economic development
 Phillips curve
• Shows an inverse relationship between
inflation and unemployment
• Governments policy choice could trade off
inflation against unemployment
• Lower unemployment could be bought at the
cost of higher inflation.
 Phillips curve

Inflation

unemployment
 Okun’s Law
• The relationship between changes in real
GDP and the corresponding changes in
unemployment is called Okun’s Law.
• According to Okun’s law, for every
percentage point that real GDP grows faster
than the normal rate of increase in potential
output, the unemployment rate falls by one-
half of a percentage point.
 Okun’s Law: Example
• If the trend rate of real GDP growth is
3% per year and the unemployment
rate is 5%, then ;
 If real GDP grows by 4% a year (1% point
above its trend), then the unemployment
rate will decline by 0.5% to 4.5%.
 If real GDP grows at only 2% per year (1%

point below its trend), then the

unemployment rate would rise 5.5%.
• The "gap version" states that for every 1%
increase in the Unemployment rate a
country's GDP will be roughly an additional
2% lower than its potential GDP.
• The "difference version" describes the
relationship between quarterly changes in
unemployment and quarterly changes in
real GDP.