Unemployment

Dr. Pinki Shah

 Employment/Unemployment

 A National Goal is to Maintain “Full

Employment”

 Types of Unemployment

 What is Full Employment?

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 Unemployment

Unemployment exists when

workers are unable to find
jobs despite being prepared to
accept work at the existing
wage rate .

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 Unemployment
Unemployment Rate: It is the
percentage of people in the labour
force who are without jobs and are
actively seeking jobs. It is expressed
as percentage of the labour force.

Unemployed
X 100
Labor force

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 Types of Unemployment

Seasonal Unemployment
Frictional Unemployment
Cyclical Unemployment
Structural Unemployment

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Frictional Unemployment:

When the workers are unemployed for the short

length of time between jobs. Such as who are
changing jobs, initially entering the labour force,
or re-entering the labour force.

Or
 The quality of the information available for job

seekers is crucial to the extent of the frictional

unemployment

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 Structural Unemployment:
 Unemployment caused as a result of the decline
of industries and the inability of former
employees to move into jobs being created in
new industries
or
Unemployment caused by a mismatch between the
skills or location of job seekers and requirements or
location of available jobs
As the coal industry declined, many miners had
difficulties utilising their skills to find work in new
industries such as IT and service sector work. An
example of structural change in the economy leading to
unemployment.
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 Types of Unemployment
Seasonal Unemployment:
 Unemployment caused because of the

seasonal nature of employment – tourism,

skiing, cricketers, seasonal labour in
agriculture sector, etc.

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Cyclical Unemployment:
Unemployment caused by the economic
performance or business cycle or due to
insufficient aggregate demand or total spending

 Caused by a general lack of demand in

the economy – this type
of unemployment
may be widespread across a range
of industries and sectors
 Keynes saw unemployment as primarily a
lack of demand in the economy which
could be influenced by the government
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 Technological Unemployment
caused when developments in
technology replace human effort – e.g in
manufacturing, administration etc.

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 Full Employment and Unemployment
 Full Employment
 Does not mean zero percent unemployment.

 It is the situation in which an economy

operates at an unemployment rate equal to
the sum of the seasonal, frictional and
structural unemployment rates.
cyclical unemployment = zero

 The full-employment rate of unemployment is

called the natural rate of unemployment

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  Natural rate of Unemployment
The proportion of workforce which
choose voluntarily to remain
unemployed when the labor market is
in equilibrium.
 Frictional Unemployment Rate
+ Seasonal Unemployment Rate
Unemployment
+ Structural Unemployment Rate
= Natural Unemployment Rated

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 Unemployment Rate

 The rate of unemployment depends

on various features of the labor
market, that include minimum-
wage laws, the market power of
unions etc.

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 Why Unemployment is a Problem
 Lower level of wages
 Lower level of Incomes
 Lower level of investment and
Production
 Lower standard of living

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 Keynesian Approach
 Keynes suggested that the achievement
of full and stable level of employment
required the government to play an active
part in determining the level of total
expenditure. This policy is known as
demand management.
 So the government seeks to influence the
component of aggregate demand i.e.
C,I,G, X and M.

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