Unemployment is a common word nowadays. It is observed that in spite of education, there are many people that remain without jobs. Widespread and persistent unemployment is one of the serious macroeconomic problems, both developing and developed countries in the world. Unemployment brings a large number of socio-economic problems in many divers’ ways. The negative crash of unemployment is divers and delicate. In addition if the output of income is low its leads to the rising income inequality, ill health and mortality, loss of human capital and skills, migration, loss of human capital relation, loss of motivation for future works and social life. For that reason it is very important to be aware of the nature and effects of unemployment. We should also have to design suitable policies and programmers to contest it. In this component that will be introduced to the perception classification, and measurement of unemployment. From this a person will be able to analyze the tendency and consequence of unemployment, and evaluate effectiveness of different programs and policies that are initiate by state and central government to reduce the unemployment in economy.
Definition of unemployment
We might have listen to about unemployment from our friend and relative are jobless they don’t have jobs opportunities even after being effectively educated.
To most, the word unemployed means remain without work. Basically the word Unemployment is define as ” it is that condition when the people have no job or remain being out of work or proportion of people that are able to do work actively and searching for jobs but they are unable to find any job.”
IMF report (1998) defines as:-
‘Unemployment is measured annually as the labor force percentage that are unable to find a job’. Unemployment also defines as the proportion of people in the working population that are jobless and unemployed.
Unemployment is basically a persistent challenge that is facing Pakistan since its inception and it is one of the biggest problems of Pakistan.. An unemployed person can be define as who is an active part of the labor force and he is able to and looks for work, but is unable to find work for the duration of a precise reference period that might be a week ,a month or a whole year.
According to current situation in Pakistan more than 30 lack people are unemployed and unemployment ratio is more than 12%.
The unemployment issue of Pakistan is increasing more in rural areas where almost 70% of the Population is living. Their livelihoods depend on rural economy. They have lack of basic necessities such as primary health care, education, job opportunities, social services and some other issues due to unemployment increasing gradually. The biggest reason of unemployment is backwardness of agriculture sector in Pakistan economy. Agriculture sector is the largest sector of Pakistan economy it contributes 20.9% to GDP and 44% people directly or indirectly get jobs opportunities from this sector. Unemployment in agriculture sector arises from two sides.
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First reasons for increase unemployment in agriculture sector are adoption of latest machinery and the use of capital intensive technology. From these reasons, demand for labor is decreased gradually. Second reason of unemployment in agriculture sectored is the backwardness of agriculture sector. There is less availability of quality seeds, pesticides, and fertilizers, nonappearance of land restructuring and deficiency in agricultural education. From these reasons or these factors agriculture sector is not growing or flourishing and due to these problems there is general and disguised unemployment occurs.
Industrial sector is the second largest sector of our economy and it contributes 19% to national income of economy. A large number of labor employed by this sectors. But due to backwardness in industrial sectors a small number of people are employing. Due to electricity breakdown it already established industry is deteriorating, resulting is the prevailing unemployment ratio. In Pakistan education system is very defective. There is lack of appropriate educational planning. There is shortage of technical and vocational institutions in economy. The attitude of public towards education is not sober; they want to obtain their degrees in general and arts subject. Nobody is ready to establish his own business without attaining the technical education. Majority of the businessmen in Pakistan are less educated and unskilled. They don’t have proper knowledge and they don’t know how to run their businesses properly and effectively. So they become bankrupt in a country. This factor and reasons generates unemployment on a massive level.
Change in demographic structure is the major reason of increase in unemployment, women participation in labor force, immigration from rural areas to town, many economic crises in a society and technological unemployment in these societies. On the other hand unemployment is basically not only a economic problem but it is also a social problem and that may cause crimes and deform social fabric. The struggle against unemployment is not limited the unemployment rate in the economy but also to take a consideration into the relationship with macro economic variables such as we can take the example of economic growth, exchange rate and inflation natural unemployment In the economy can be summarized as change in demographic structure, many oil crises, enlarge Capitan intensive production, labor unions, loss of power, increase in productivity, productive growth, decrease in wages rise, firm structure and structure of policies that regulating in labor market are imbalances in rural as well as in urban areas. Another major factor is Inflation is that may affect unemployment. In the past 20year the rapid and wide spread diffusion of computer information technology at a work place is one of the most important and notable trend. This development has prompted both a great concern that its effects the employment and enhance the job skill requirement that increase the economic inequality and great deal of excitement that information technology serve as engine of economic growth.
Types of unemployment
In detail understanding the meaning of unemployment, now we will talk about the different types of unemployment. Generally, unemployment can be separated into two different types: that are voluntary, and involuntary, unemployment.
Voluntary and involuntary unemployment
Voluntary unemployment occur due to motive that are explicit to an individual, whereas involuntary unemployment is foundation by a huge quantity of socio-economic factors, for example level and composition of aggregate demand, structure of the market, government intervention, and so on.
Therefore, the Unemployment has different kinds depending on the nature, origin, and period of unemployment. Let us now talk about various types of unemployment. Unemployment is broadly classified in following group.
There are different types of unemployment we can define them in five categories such as frictional unemployment, structural unemployment, cyclical unemployment, classical unemployment and demand deficit etc.
Frictional unemployment
Frictional unemployment includes those people that are unable to do work and the accumulation of people moving between jobs. its happened due to the discrepancy in the timing due to this people leave one job and starts another job. Frictional unemployment pass on to a renovation period of searching for a new job, for different reason, such as looking for a better job, being passionate from a present job, or having voluntarily current job. The phase of current to a new job is referred to known as frictional unemployment.
Seasonal unemployment
The other type of unemployment is Seasonal unemployment that is a type of frictional unemployment, it occurs in a definite activities or profession which is describe by seasonal work. the example of seasonal unemployment is lack of job through non-cultivation in rural areas.
Structural unemployment
Structural unemployment occurs when there is the long-term changes happened in the patterns of production and demand within an economy .This kind of unemployment takes place when there is numerous transform in technology and consumer demand in the economy. For example, when computers were initiate many workers were displacing because of a divergence between the accessible skills of the workers and the obligation of the job. Though jobs were accessible, there was a demand for a new category of ability and qualification. So, persons having old skills are not able to get employment and job opportunity in the distorted economic domination and stay unemployed. This is known a structural unemployment.
Cyclical unemployment
In cyclical unemployment comprise those workers who dismiss when the overall economy suffers a downturn. When there is an economy is broad decrease in aggregate demand for different commodities and services, employment turn down and unemployment in the same way increases. as a result it is sometime referred to as ‘demand lacking unemployment’. For example during the current global slowdown, in late 2008, many workers in the region of the globe vanished their jobs.
Natural rate of unemployment
Natural rate of unemployment is basically the total of structural unemployment and frictional unemployment that is stated as the natural rate of unemployment of economy .Open unemployment happen when a person is voluntarily or involuntarily and keeps himself out of deliberation for definite jobs. For example In1980s there was a quick decreas in the coal and steel industries in the UK. That’s caused a large number increased in structural unemployment in those areas for example industries of South Wales sun-set etc.
All the developing countries, including India endure from structural unemployment, which survive both in open and disguised structure. The major problem in underdeveloped countries can be analysis better as underemployment a fractional lack of work, low employment income, and under utilization of skills, underutilization of natural resources or low productivity, slightly issue of unemployment as argue above. Thus, underemployment explain the condition of those person who are able to do work at part time because full time jobs is unavailable or employed one full time foundation but the services they turn into might be in fact much less than as compared to full time as known as disguised underemployment and those who are employed in profession have need of inferior levels of talent than they are to be qualified for, that a name is hidden underemployment. A related concept is that of working poor those who are actually work for long hours but they earn only at low income lower than the poverty line. On the other hand working poor people is definite as situation when the individuals or households, in spite of being employed, stay put in comparative poverty due to diminishing levels of wages and their earnings.
It is essential to note that the kinds and nature of unemployment fluctuate extensively in underdeveloped and developed economies. Unemployment in developed countries occurs due to the lack of required effective demand or economic slowdown, such as recession, or depression. In developing countries, unemployment happens largely because of a lower demand for labor or inadequate employment opportunity in these economies. These situations take place due to the survival nature of many agriculture sectors, a lower industrial foundation and the many small size of the tertiary sector of economy. Let us now discuss the different concepts of unemployment that are related to developing countries, including India. They have less income that is below the poverty line. In other words, poor working community is describe as a Situation when the households or individuals, in spite of individual employed, stay behind in comparative poverty due to low levels of earnings and wages .
Classical unemployment
Classical unemployment is the view of unemployment that put forward by classical economists. It occurs when the real wage is too high. The contribution of Real variables is acquiring account from the different price level and the contribution of nominal variables does not do so. According to the framework of classical, basically the prices and the wages are absolutely flexible so to maintain the economy at a full-employment level.
Demand-Deficient Unemployment
Demand-Deficient Unemployment refers to unemployment within the framework of Keynesian, where the aggregate demand level is under that essential for the achievement of full-employment level in the economy.
In Pakistan mostly unemployment occurs as cyclical and structural nature. Basically Unemployment is a middle problem for the reason that when unemployment rate is high, resources in that economy are not utilized by properly and are wasted and due to that reasons people’s incomes become miserable during such time periods, economies become distress and also tip out over to affect of people’s emotions and many other family lives. There are many of reason of unemployment that arises in Pakistan. These causes of unemployment are stated below. Some of the causes of unemployment that are usually aware, the main problem is that there are over population in the economy and comparing that there is lack of work and jobs. Some of the significant of unemployment are stated as the high rate of growing population and the subsequent increase in labor force; low velocity of economic growth, need of sufficient employment opportunities in non-agricultural activities and creation of seasonal employment, or need of full time employment in agriculture; low labor incorporation capacities in industrialized and tertiary activities; shifting from labor-intensive to capital, Skill-intensive production technique and expansion in education system, and so on.
Let us now we will briefly elaborate these causes. Low and unpredictable levels of economic growth do not generate sufficient employment opportunities, as desired. in addition, many rates the different sectoral work of art of growth is considered as most important determinant of unemployment. Extreme dependence on agriculture sector and slow growth of non-farm activities is the cause of limit employment generation. Utilization of capital-intensive technique and production practice not only dislocate presently employed persons, but also measured down the generation of new employment opportunities. There is the need of a clear and glowing developed human resource policy and manpower policy, may show the way to a disparity between the need and accessibility of appropriate skills and training, which outcome is unemployment, mainly of youth and educated,speedy growth in population, deficiency of employability due to poor health and nourishment that also show the way to unemployment. Insufficient of investment and other infrastructure development are the major factors that are not producing the sufficient levels of employment in the economy, and as a result unemployment rises in economy.
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Insufficient accessibility of unemployment insurance and public employment programmers also source a increase in unemployment. Such as smuggling in large scale that is flooded the market in local industry the cheaper goods are created a serious danger for the development of these industries. Economies is control by stretched bureaucratic, there is complex tax system insufficient credit facilities and are many other factors are enhancing the problems in the way of development of private sector as well as investment in industrial projects of economy.
Now we will discuss the problem of under employment and working poor.
Underemployment problem might acquire different forms, such as limited requirement of work; low income comes from employment, and less utilization of skills, knowledge or less productivity. On the other hand, the underemployed person are those which look for and are accessible for alternative work, moreover because the quantum of current work is not sufficient, or not remunerative sufficient In this section, we will talk about two important component of underemployment, that is. First, the occurrences of poor working papulation are the category of employment and extensive sector, and second, insufficient accessibility of work.
The working poor might be depict like individuals and families who preserve regular Employment but residue in relative poverty because of low levels of wage and earning Approximately one fourth of the total workforce functions at income level, which is below the predetermine levels of MPCE that are being used to identified the poverty line in India. It is significant to note that the frequency of working poor is highest among the workers who work informal The occurrence of working poor population is too high for the self employed workers. The extent of working poor is more in urban areas as contrast to rural areas for all category of employment. There are significant variations in the section of working poor population in wide sectors of economy .A larger proportion of primary sector that is agriculture workers are poor contrast to workers in secondary and tertiary sectors. Yet again, in urban areas the occurrence of working poor population is bigger than as compared to rural areas in all of these broad sectors.
Youth unemployment
Youth unemployment is also a very serious problem with much socio-economic implication. Unemployment that surrounded in youth that cause not only a social cost in stipulations of probable loss of talent and training, except also it is protracted, it will generate unrest Among the youth and capacity that go ahead to family argument, alcohol, drug, suicide and abuse, For expediency, in this unit, we have distinct ‘youth’ as persons old 15 to29 years. In conditions of all the four measures of unemployment, the rates unemployment are maximum for persons who are old 20 to 24 years. The rates unemployment is considered higher for urban comunity at unreliable age groups. The unemployment rates have amplified for those persons whose age groups fall during 1993-9412004-05. Therefore, the occurrence of youth unemployment has an increasing tendency and it is more delicate in urban areas. Special employment policies and programmers need to be prepare
to address the problem of youth unemployment.
The level of education is an significant correlate of unemployment. There is a general belief that education level and rates of unemployment are inversely linked with each other. The level of education is an imperative associate to unemployment. There is a general certainty that education level and unemployment rates are inversely related with each other, the illiteracy rate in 1993-94 rural male and female was 1.8 and 2.2 respectively, in 1999-00 was 3.0 and 2.7 and in 2004-05 was 2.7 and 2.5 respectively. And in urban areas illiteracy rate in 1993-94 of 2.2 of male as well as female, in 199-00 was 3.1 of male and 2.0 of female and fanly in 2004-05 2.8 of males and 2.5 women were illiterate. But, an Unemployment rate is very high for educated workers. This is real fact for both male and female workers, with in rural and urban areas. Illiterate person or workers through low level of education that do not have sufficient employment options. Consequently, they cannot meet the expense and they wait for a improved employment opportunity. From divergent educated and trained workers in the favor to keep on unemployed till they obtain appropriate choice of their employment opportunity. For that reason, at very higher levels of education, the unemployment rates are also very higher. In addition the potential of changing jobs are also advanced for educated workers. The conversion period between the present job and new job is also a magic charm of unemployment, which might be referred to as frictional unemployment. Consequently now the question is that what is the main reason of the rise in educated unemployment? Earliest, in excess of the years, there has been considerable expansion of the education sector. as a result when educated workers entered into the market labor force has increased, but the economy has unsuccessful to create equivalent employment opportunities on behalf of those workers.
On the other hand, there is inequality linking with the supply of and demand of educated Workers in the economy. It may also be discuss that the existing education system is has unsuccessful to provide the right kind of skills, opportunities and technical propensity. The skills and capability of these educated workers that are do not match the necessities of several of kinds of work and activities that are available. For example, in India the education system, many workers have ten years of schooling and they do not attain any vocational training, and therefore they are not appropriate for any skilled jobs.
Unemployment and poverty are two imperative problems of all developing countries and they are interconnected with each other .Unemployment and poverty coexist at a time, but it is not always positively connected with each other.. But unemployment and remain in underemployment are most important causes of poverty and, as a result, the provisioning of profitable employment will be fundamental for poverty reduction in economy. in view of the fact that in the Indian statistical system, poverty is considered on the foundation of Monthly Per Capita Expenditure (MPCE), accede to us now investigate the behavior of unemployment rates are unreliable levels of MPCE in rural and urban areas of India. Many African countries also facing the problem of unemployment in African countries the Growth is essential not only for growing the levels of income but also for put down the groundwork for sustainable poverty reduction policies, improving human welfare and enhancing the overall development in economy. Growth facilitates countries to enhance the accessibility and allotment of basic life supporting goods and services for example food, shelter, health, shield and protection. It also permits countries to produce more jobs and better education slandered, in that way growing the assortment of economic and social choices obtainable to individuals. For the considerate how to attain growth and how we can maintain it at high levels is the solution to understanding that how we can increase the living standard of individuals and recover poverty on the continent so that people can live happily.
From the time when the occurrence of the global crises in Africa, the GDP growth has trended downwards, even though showing some flexibility as evaluate to preceding episodes of economic recession. with the intention of growth rate was 4.9 per cent in 2008 and 1.6 per cent in 2009 outstanding mainly the demand of commodity was low and prices and a spiky fall in domestic demand specially private investment, exterior capital inflows and tourism receipts. Projected growth improvement in Africa is about 4.3 per cent in 2010 will another time rely mostly on the health of the global economy and its craving for Africa’s commodity that are exported, which will increase export prices and revenue generation.
The economic crash of the global economic recession on African countries is because of that its depended more on their economic structures. The Africans Countries that are seriously dependent on mineral resources and undiversified export intention that were affected the most because of lower prices of commodity and their demand. The disaster also has an impact on social conditions of the countries, as a result there is declining in living standards of the people, particularly in that place where social protection is not well-developed. The prolonged decelerate in the world of economy that reason to transmittal, job creation, tourism and ODA start decline and as a result the unemployment to increase.
In economic theory the linear positive relationship between economic growth and employment can be supposed. There is not a common thinking related to this issue between the economist. Some suggested that there is a positive relationship between employment and economic growth and this economist are not agreed with the jobless growth. But in few recent years it is observed that unemployment problem can’t be solved by economic growth alone. In economic theory the relationship between unemployment and the economic growth is explained by using Okun’s Law.
Okun’s Law
Okun’s Law described an enduring empirical observation that firstly made by Arthur Okun in 1962 he observed that in the postwar periods the unemployment rate was on the average, each extra percentage is above than four percent and that can be associated in real GNP with about a three percent. Because empirical finding of Okun’s is well held up during the ensuing decade, the ratio was 3:1 in trade off between the real GNP growth and unemployment rate that becomes to known as Okun’s Law.
Now we will explain the relationship of unemployment and inflation.In economic journalism there are many different accounts of labor market theory. All labor market effect have been clarify by theoretical point of view with the help of three major forces that are the market forces of demand and supply ,sociological factors such as cultures, customs, class, and family background and some institutional forces in the appearance of government union etc. With this framework there are different schools of thought exist in which includes the classical, the neoclassical views, and the institutional schools that are come into view in labor economics journalism. That is basis on relative significance and the working of such forces to express about specific labor market effect.
The neoclassical school of thought paying attention on the primarily operation of market forces in influencing the wages and distribution of labor, and measured other institutional and social factors as mention. On the divergent, the institutional school highlights the role of institutional forces, for instance internal labor markets and unions, and sociological factors, such as class and intolerance segmentation, in addition to stratification Unemployment in the labor market. The institutional school consequently, situates emphasis on the exclusive features of the labor market, and explains that how these forces fade away the role of market forces hence, known about the different theories and school of thoughts in labor economics journalism that how they would one explains the problem of unemployment?
Unconventional such theoretical explanations on the major problem of unemployment that have been locate ahead by different schools of thought. Of economic .Keynesian economic thoughts center of attention on be deficient in of efficient demand for goods and services that foundation is unemployment in an economy, and discuss those government policies, mutually monetary and fiscal, might be used to increase aggregate demand, therefore, increasing economic activity and sinking the unemployment and deflation. On the divergent, the Classical and Neoclassica1 Schools of thought have paying attention on labor market inflexibility, for instance minimum wage and additional regulations as clarification for unemployment in economy. But this clarification may not be sufficient enough to explain the problem of unemployment known the heterogeneity of this problem in expressions of nature, pattern magnitude, reason of unemployment, and their impact in the economy. on the other hand in this perspective it is attractive to understand an important theoretical description of the relationship between unemployment and inflation revealed by A. W. Phillips. He predicts an inverse relationship between unemployment and inflation, presenting a downward slope curve, popularly known as the Phillips curve .He clarifies the tradeoff between unemployment and inflation, and show that how any attempt by governments is helpful to reduce unemployment was liable to source increased inflation.
There are different theories related to unemployment. Different economists distinguish between various types of and theories of unemployment, including structural unemployment, cyclical or Keynesian unemployment frictional unemployment, and classical unemployment.
Cyclical or Keynesian unemployment is also known as deficient-demand unemployment, it occurs when those who wants to do work but jobs are not provided by them due to the lack of aggregate demand in the economy. Demand for most good and services fall down, less production is needed and consequently a fewer work are needed for these goods and wages are sticky that do not fall to the meet the equilibrium level in the economy, and result is the mass unemployment . this type of unemployment occurs during the great depression of the 1930s. in cyclical unemployment the number of unemployed workers the number of existing job vacancies , so that even in full employment were attained and mostly open jobs were fille due to this some workers still remained unemployed. Cyclical unemployment is associated with frictional unemployment at some extent because the factor that cause to create frictional unemployment are partially caused by cyclical variables. For example , a decrease in the supply of money surprisely may shock rational economic factors in the economy and suddenly inhabit the aggregate demand.
Classical economist reject the conception of cyclical unemployment and gives the alternatively suggestion that is invisible hand of free market would response quickly to unemployment and underutilization of resources by a fall in wages result is rise in employment.
Keynesian economist on the other hand result is the lack of demand for jobs are potentially resolved by the govt intervention. Keynesian other suggested interventions involves deficit spending to boost employment and demand. Another intervention involves expansionary monetary policy that increases the demands of money that reduced the interest rates that leads the increase in non government spending.
Next theory is Marxist theory of unemployment this theory is presented by Karl Marx, unemployment is inherent within the unstable capitalist system and periodic crises of mass unemployment are to expected. Proletariat function within capitalist system provides “reseve army of labour” that create a downward pressure in wages. That accomplished by dividing the proletariat into surplus of labor and under employment. Reserve army of labor basically fights among themselves for the purpose of scaring jobs at lower and lower wages. At first point, unemployment seems to be inefficient since the profit of unemployed worker do not increase. However, unemployment is considered profitable within the global capitalist system because unemployment at lower wages which is the cost from the perspective of the owners and from this perspectives low wages provide the benefit of the system of reducing economic rents. Yet it does not provide benefits for workers. The capitalist system manipulates the market for labour unfairly by perpetuating unemployment which lowers laborers and demand for fair wages.
According to Marx, to eliminate the unemployment permanently there is only one way that would be to abolish the capitalism system in the economy and the system of forced competition for wages and then it shift to a socialist economic system. Acording to Marxists, existence of persistent unemployment is proof of the inability of capitalism that ensur the full employment in the economy.
Now we will discuss about involuntary unemployment. in the general theory , keynsian argued about neo-classic economic theory he said that nea-classic theory did not apply during recessions because of excessive savings and weak , poor investment in the economy. As a re
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