MACROECONOMICS

 
CODE: BBF1201

LECTURER: DHANYA JAGADEESH

BAISAGO UNIVERSITY COLLEGE
 Chapter 4
Unemployment
Topic Covered
 Definition of labour force
Unemployment,
Unemployment rate,
Participation rate, &
Employment rate
 Types of unemployment
 Effects of Unemployment rate
 Policies to solve unemployment
 Definition of Labour Force
The total number of people employed or seeking
employment in a country or region, it is also called work
force.
labour force = unemployed + employed

- labour force is all the people those are able to work.

Employment rate. Employment rates indicate the percentage of
persons of working age who are employed.
Employment rate = Employed x 100
Labour force

participation rate
The labour force participation rate is the percentage of
working-age persons in an economy who:
 Are employed
 Are unemployed but looking for a job

 "working-age persons" is defined as people between the ages of

16-64. People in those age groups who are not counted as
participating in the labor force are typically students, homemakers,
and persons over the age of 64 who are retired.
Unemployment
The situation where by not enough jobs are available for
everyone who is willing & able to work.

Unemployment rate
The percentage of the total labor force that is unemployed
but actively seeking employment and willing to work.

Unemployment rate = Unemployed x 100

Labour force
Types of Unemployment

Frictional Unemployment
Cyclical Unemployment
Seasonal Unemployment
Structural unemployment.
Frictional Unemployment: Frictional unemployment is
the time period between jobs when a worker is
searching for, or transitioning from one job to another.
It is sometimes called search unemployment and can
be voluntary based on the circumstances of the
unemployed individual.
Cyclical unemployment is workers who are out-of-
jobs because employers cannot sell enough goods.  In
other words, the economy is depressed. If it grows
faster these people will get hired. Cyclical
unemployment can fixed by appropriate macro-level
stimulus policies. This occurs due to downturns in
overall business activity or Recession.
Seasonal unemployment means the worker (and
his/her skills) is unemployed because it’s the wrong
time of year.
Structural Unemployment:
Structural Unemployment, one of the three types of
unemployment, is associated with the mismatch of jobs and
workers due to the lack of skills or simply the wrong area desired
for work. Structural unemployment depends on the social needs
of the economy and dynamic changes in the economy. 
For instance, advances in technology and changes in market
conditions often turn many skills obsolete; this typically increases
the unemployment rate. For example, laborers who worked on
cotton fields found their jobs obsolete with Eli Whitney's
patenting of the cotton gin. Similarly, with the rise of computers,
many jobs in manual book keeping have been replaced by highly
efficient software. Workers who find themselves in this situation
find that they need to acquire new skills in order to obtain a new
job.
 Effects of Unemployment
Unemployed suffers a loss of income, shock &
frustration
Unemployment results hunger, cold, ill health & even
death
Unemployed also suffered psychological costs like loss
of confidence & self esteem, psychological disorder,
divorces, suicides and criminal activities.
Policies to solve Unemployment
Supply side policies

Population growth – rapid population growth leads to unemployment

- take steps to reduce population growth
- HIV/ AIDS causes a significant decrease in labour force
 
Migration – net increase in immigrants can also increase unemployment
- use stricter immigration controls – visas, work and residence
permits
 
Skills – shortage of skills and oversupply of semi skilled labour – too much
wrong type of labour
- policies to improve quality of labour eg education and training,
vocational centres
Demand side policies
AD = C + I + G + NX
-raise aggregate demand for products
increase government spending
stimulate C and I by lowering taxes and interest rate
raise demand for domestically produced goods
# however excessive stimulation of aggregate demand can result in
inflation

Other policies
- promote economic activities which are labour intensive eg agriculture and
construction
- special employment programs eg build and maintain roads, dams, clean the
environment
- subsidies and tax exemptions
- Education and training, funding investors, government spending,
unemployment benefits, irrigation, social welfare grants etc
 Policies to solve Unemployment.
Additional employment can be created by raising the
Agregat demand for goods and services
Increasing labour intensive production
Increase govt expenditure (expansionary fiscal policy)
Stimulate consumption & Investment
Create Special Employment programmes
Promote small business & informal sector
Give tax incentives or subsidies
Revise labour legislation, it should be the one which
encourage employers to employ more employees.
4,16,36,64 ?
300,100,200,150