Business Environment and Law

PSDA
 Why do people work ?
1. Meet your needs.

2. Jobs are rewarded with a pay.

3. The more responsible the job the more

is the reward.

4. People enjoy working.

5. Socially meet new people.

6. Satisfaction in your work.

7. Purpose of life.
 What is unemployment?
A working definition of unemployment

-People able, available and willing to find work and actively seeking work- but not
employed

- The unemployed are included in the labour.

Calculating Unemployment rate

The unemployment rate is calculated as the percentage of labor force that is

unemployed.

Unemployment rate = ( unemployed / labor force)*100

Stories of Unemployed
● A 25 years old teacher who has a GPA of 4.

● Bachelor’s Degree in elementary education

and master’s in educational Leadership.

● Told she was over-qualified . Has no job

● No income to pay off debt and taxes.

● No more house to live in.

● Lost everything she achieved.

 Causes of unemployment
1. Lack of stock of physical capital

All economic activities require physical capital to produce them. A farmer needs a plough, tractor
and other machines; an industrialist needs land, machines, minerals etc.; and service sector needs
modern technology, buildings, tools, etc. All of this is physical capital. India has not been able to
maintain its capital stock to fulfil the demands of a rapidly increasing population.

2. Population growth and Technology

As the focus on greater productivity increases, industrialists and employers prefer to employ machines
over humans for various jobs. They cost lesser than employing labourers and produce more. However,
a country like India with rapid population growth need labour-intensive techniques instead of capital
intensive techniques.
 3. Dependence on Agriculture

A majority of India’s population is still employed in the primary sector while the primary sector’s
share in GDP has consistently declined. This has led to disguised unemployment and greater
urban-rural economic gap. Agriculture is also seasonal in nature which leaves a majority of the
population vulnerable to seasonal unemployment.

4. Fall of Cottage and Small Industries

Many artisans and rural workers were earlier employed in cottage industries but since the market
has been flooded with cheap goods from MNCs, cottage industries have lost their market, leaving
many people unemployed.
 5. Labour Mobility

India has seriously labour mobility issues since labourers often do not migrate to places where their
skills might be better utilised due to language and cultural barriers, strong bonds with families, etc.

6. Social Norms

India has many regressive social norms. In many families, women are not allowed to work outside
their homes. This makes many women unproductive economic capital. Due to the caste system, many
people are confined to certain occupations even though they may be better suited for something else.
 7. Low Economic Growth

Low economic growth along with high population growth causes an imbalance and creates a
vicious cycle of poverty where demand for employment exceeds the supply of jobs.

8. Job Specialization

Jobs in the capitalist world have become highly specialised but India’s education system does not
provide the right training and specialisation needed for these jobs. Thus many people who are
willing to work become an unemployable due to lack of skills.
Costs of Unemployment
Personal costs ● Lost of income for those affected.
● Dependency on government benefits.
● Lost of working skills (especially for
those unemployed for a long time and
not subjected to re- training).
● May cause depression and illness.
● May put strain on other family
members and health care services
 ● Unemployment benefits may only be
limited to registered people who are

Fiscal Costs seeking work and do not currently have a

job.
● Theses benefits only cover for food & other
necessities for a limited time.
● Employed people must pay higher taxes to
sustain the unemployed
● Public expenditure is spent for the
unemployed rather than for health care,
schools, etc.
● Living Standards may fail
 Economic Costs

● The higher the unemployment rate , the lower the output produced.

● This will result in lower GDP which can cause lower living standards and eventually , an economic recession
Economic Cost
Opportunity Cost - measures the benefit you could have had from the next
best alternatives you have gone without
 2 Possible Solutions for Unemployment

1. Monetary policy - Monetary policy is financial influence implemented by a central bank (in
India, this is the Reserve bank of India). Monetary policies usually come in the form of lower
interest rates, which increase the total money supply within an economy by allowing banks and
businesses more access to loans—and therefore, more accessible spending power.

2. Fiscal policy - If expansionary monetary policy doesn’t adequately lower the unemployment rate,
government agencies will turn to fiscal policy. Fiscal policy is fiscal stimulus implemented by the
national government, and fiscal policies include spending on infrastructure, proposing tax cuts,
increasing the minimum wage, or implementing unemployment benefits (for instance,
unemployment insurance). These methods are designed to inject more demand into the private
economy and strengthen economic activity.
 The Most Cost-Effective Solution
Unemployment benefits can provide growth as well. According to Wayne Vroman, an economist and senior fellow
at the Urban Institute for the Department of Labor, unemployment insurance led to the creation of 1.6 million jobs on
average each quarter from 2008 to 2010.8

The unemployed are most likely to spend every dime they get. They buy basics like groceries, clothing, and
housing. As a result, every dollar spent on unemployment benefits stimulates $1.64 in Gross Domestic Product.
How can $1 create $1.64? It does it through the ripple effect. For example, a dollar spent at the grocery store pays for
the food. It also helps pay the clerk's salary, the truckers who haul the food, and even the farmers who grow it. The
clerks, truckers, and farmers then buy groceries. This ripple effect keeps demand strong, creating added benefits.
Stores keep their employees to supply the goods and services the unemployed need. Without these benefits, demand
would drop. Then retailers would need to lay off their workers, increasing unemployment rates.

Unemployment benefits work fast. The government writes a check that goes directly into the economy. Public works
projects take longer to get implemented. The plans must be updated, workers hired, and supplies delivered.
Funding education is also an effective unemployment solution. One billion dollars spent hiring teachers adds $1.3
billion to the economy. Better-educated people can get higher-paying jobs. They can buy more things with the higher
wages they earn. Each $1 billion spent can create 17,687 jobs. That's much better than defense spending. It only
creates 8,555 jobs for the same investment. Defense is more capital-intensive. Modern defense relies more on drones,
F-35s, and aircraft carriers than soldiers.

The most popular fiscal stimulus is across-the-board income tax cuts. That's not the most cost-effective, according to
the UMass/Amherst study. One billion dollars in cuts creates 10,779 jobs. Workers only spend half the money, which in
this case is only $505 million.
THANK YOU