Philippine Christian University

1648 Taft Avenue corner Pedro Gil Street, Manila, Metro Manila, Philippines

In partial fulfillment of the requirements for the Master of Management

in Educational Management
UNEMPLOYMENT AND UNDEREMPLOYMENT

Prepared by:

MARIA LUISA L. CAETE

MMEM STUDENT

Submitted to:

RENATO DOLOSO,
Ph.D.D.A
PROFESSOR

UNEMPLOYMENT AND UNDEREMPLOYMENT

Unemployment is a major social and economic problem that is present in some point in
all countries worldwide. The unemployment may be defined as state in which, people who does
not have a job, and are available for work, and are actively looking for work (International
Labour Office's 1998). The prevalence of unemployment is usually measured by the
unemployment rate, which is the percentage of those in the labor force who are currently
unemployed. It is common among the modern economists to use the unemployment rate as an
indication of the underuse of a nation's resources, and to inform on the economic and social
hardship that the absence of employment creates. There is a need to stress the fact that the
unemployment itself is powerful tool of preventing and (at some point) controlling the inflation.
But still, the reasons that lead to the state of unemployment are not agreed by all parties. For
instance, Keynesian economics emphasizes unemployment resulting from insufficient effective
demand for goods and services in the economy, while Classical or Neoclassical economics
focuses more on rigidities imposed on the labor market from the outside, such as unionization,
minimum wage laws, taxes, and other regulations that may discourage the hiring of workers.

Furthermore, the economists not only disagree on the causes of the unemployment, but
also how it should be measured. This is mainly due to the fact that there are many different types
of unemployment. The most common ones are cyclical unemployment, frictional unemployment,
structural unemployment and classical unemployment. Cyclical unemployment occurs when
there is not enough aggregate demand in the economy. Cyclical unemployment rises during

economic downturns and falls when the economy improves. n this case, the number of
unemployed workers exceeds the number of job vacancies, so that if even all open jobs were
filled, some workers would remain unemployed.

Frictional unemployment occurs when a worker moves from one job to another. The time
period between jobs is considered frictional unemployment. Structural unemployment occurs
when the number of jobs in a labor market are unable to provide substantial jobs for everyone
who wants one. Structural unemployment is hard to separate empirically from frictional
unemployment, except to say that it lasts longer. Finally, Classical unemployment occurs when
real wages for a job are set above the market-clearing level, causing the number of job-seekers to
exceed the number of vacancies.

Still, the common characteristic that all types of the unemployment have is that all of
them have an economic and sociological impact not only on those people who are directly
affected, but also on the families of those people, and going further: on the local, the regional
economies, and the economy as a whole. Putting it in other words, unemployment causes a waste
of scarce economic resources and reduces the long run growth potential of every economy. Next
we will examine some areas in which the impact of the unemployment cannot be ignored.

Impact of the unemployment on government

The rate of the unemployment has a direct impact on the government expenditures, the
taxes it impose, and the amount of money it will need to borrow each year to fight restore the
economy. If the unemployment rate increases, the government will spend more on all kinds of
benefit payments and will receive less taxes revenues. The decrease in the taxes revenue is
normal, since people in difficult times spending less they contribute less in the way of indirect
taxation. And since the government revenues will decrease, it will be in necessity to borrow more
money.

Impact of the unemployment on human capital investments

Unemployment wastes some of the scarce resources used in training workers.
Furthermore, the workers who are jobless for long enough become de-skilled in a quickly
changeable

modern competitive job market. This means that those who are long enough

unemployed, have an impact on the economic burdening on government and society as a whole.

Social cost of unemployment

The increase in unemployment rate, as it was shown in a number of studies, has a direct
relationship with the rising crime and worsening social dislocations such as increased numbers of
divorces, worsening health and lower life expectancy. The unemployment is also unequally
transferred among different groups of people. If we divide all the people according their

occupations, it becomes obvious that low-skilled workers have higher unemployment rates than
the highly professional workers.

Another characteristic that has direct impact on the rates of unemployment, is the age.
There is more chances for teenagers to be unemployed in comparison with adults. That is due to
number of facts such as: the teenagers have lower skill levels, quite more frequently, are more
often fired, and have less geographic mobility than adults. Also, many unemployed teens are new
in the labor market, searching for their first job. What was just written is not contradictory to
younger adult workers that are more geographically mobile than older employees. This may lead
to a risk that areas with above average unemployment will suffer from an ageing potential
workforce - making them less attractive as investment locations for new businesses. Race and
ethnicity play a major role in determining the rate of unemployment. The rate of unemployment
is significantly higher for African-American and Hispanics than whites. This is mainly due the
level of education, attainment, greater concentration in a lower-skilled occupations and
discrimination in the labor market (McConnell).

Gender plays also important role. Many sectors offer jobs only for males (navy, combat
forces) while other sectors are preferred by females (nurses).High unemployment rates is not rare
to encourage xenophobia and protectionism as there is fear of foreigners who may steal the
jobs of the native workers. But also, a rising unemployment rate concentrates the oligopsony
power of employers by increasing competition amongst workers for scarce employment
opportunities.

Cost of unemployment to individuals

The jobless individuals cannot fulfill all of their financial obligations. Inability to pay the
mortgages or rentals may lead to their homelessness or suicides. The state of unemployment
lead to malnutrition (because of the illiquidity), illness, mental stress, and loss of self-esteem
leading to depression. There is also another opinion which states that the low-income jobs are
not really a better option than unemployment, since they repeat many of the unemployments
disadvantages. But since it is almost impossible to get unemployment insurance benefits while
jobless, the jobs with low-income and unemployment are more complementary than substitutes
for each other.

Summarizing, the unemployment is a major social and economic problem, which shows
that we do not use in the most efficient way the available to us scarce resources, technologies,
and available workforce. But even though, with all its cons, the unemployment is an necessary
evil since through use of it, economists preventing the inflation. Although we have many
definitions for unemployment, as many types of it too, the economists until today couldnt agree
what exactly are the causes that lead to it and furthermore, which measurement of the
unemployment is the most precise. It is part of every economy that exist today, it is unavoidable.
The problems it creates to the individuals, groups of the individuals, local communities, whole
countries and the whole globalized economic system are enormous, and only hough spendings of
the government may decline it effect but not eliminate the phenomenon of unemployment
completely, since the full use of scarce resources is impossible to be achieved in a not perfect but
still well performing modern global economic systems.