Effects of Unemployment

on economy
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What Is Unemployment
Unemployment (or joblessness) occurs when people are
without work and actively seeking work
During periods of recession, an economy usually
experiences a relatively high unemployment rate.
Unemployed simply means you currently dont have

a job.

Types of Unemployment
Structural unemployment
Structural unemployment focuses on the structural problems
within an economy and inefficiencies in labor markets.

Frictional unemployment
Frictional unemployment is the time period between jobs
when a worker is searching for or transitioning from one job to
another.

Cyclical unemployment
Cyclical unemployment is a type of unemployment that occurs
when there is not enough aggregate demand in the economy
to provide jobs for everyone who wants to work.

CONT
Classical unemployment
Classical unemployment occurs when real wages for a jobs are
set above the marketing clearing level.

Natural unemployment
The natural unemployment rate represents the hypothetical
unemployment rate that is consistent with aggregate production
being at a long-run level.

Structural Unemployment
Structural unemployment is one of the
main types of unemployment within an
economic system.
Structural unemployment occurs when a
labor market is not able to provide jobs for
everyone who is seeking employment.
There is a mismatch between the skills of
the unemployed workers and the skills
needed for the jobs that are available.

Frictional Unemployment
Frictional unemployment is another type of
unemployment within an economy.
Frictional unemployment is always present to
some degree in an economy. It occurs when
there is a mismatch between the workers and
jobs.

The mismatch can be related to skills,

payment, work time, location, seasonal
industries, attitude, taste, and other factors.

Cyclical Unemployment
Cyclical unemployment is a type of
unemployment that occurs when there is not
enough aggregate demand in the economy to
provide jobs for everyone who wants to work.
In an economy, demand for most goods
falls, less production is needed, so less
workers are needed.
With cyclical unemployment the number of
unemployed workers is greater that the
number of job vacancies.

Classical Unemployment
Classical unemployment occurs when real
wages are kept above the market clearing
wage rate, leading to a surplus of labor
supplied.
Classical unemployment is sometimes
known as real wage unemployment because
it refers to real wages being too high.

Natural Unemployment
The natural unemployment rate, sometimes
called the structural unemployment rate.
The natural rate of unemployment is
unemployment that does not go away on its
own even in the long run.
It is the amount of unemployment that the
economy normally experiences.

How is Unemployment
Measured
The unemployment rate is calculated as
the percentage of the labor force that is
unemployed.

N u m b e r u n e m p lo y e d
U n e m p lo y m e n t ra te =
100
L a b o r fo rc e

How is Unemployment
Measured?
The labor-force participation rate is the
percentage of the adult population that is in
the labor force.

L a b o r fo rc e p a rtic ip a tio n ra te
L a b o r fo rc e

100
A d u lt p o p u la tio n

Reasons of Unemployment
Whenever new technology

introduced, the economy

moves from labor intensive to capital intensive ,which
means that now less worker are required to do a job.

The growth rate of population is also major

cause of unemployment in Pakistan; The
population of Pakistan is increasing at very high
rate this time.

Factories and industries that are required energy are

transferring their business in other Asian countries like

Bangladesh, India and as well as Sri Lanka. As of this
result a huge number of labors are becoming the
victims of unemployment.

Cont..
The biggest reason of unemployment in Pakistan is

concerned with the backwardness of agriculture sector.

Agriculture is the biggest sector of our economy that

contributes 20.9% to GDP and 44% people get jobs

from this sector directly or indirectly.
Another cause of unemployment is terrorism, due to

this the nationals and as well as foreigners are

frightened to invest in Pakistan. So when investors will
not invest so how can job or earning opportunities are
being created?

Cont..
Our educational system is also responsible for

increasing unemployment rate among the educated

youth. The attitude of our youth towards the choice
of a career is unrealistic and unproductive.
Lack of enough industries to employ over increasing

number of graduate in Pakistan

The age of retirement in Pakistan is 60 years and it is

really high age of retirement. There are various

educated people are in wait of jobs but high age of
retirement is making young ones frustrated.

Cont..
Other reason why our economy always has some

unemployment is minimum-wage laws.

Minimum-wage laws raise the quantity of labor

supplied and reduce the quantity demanded.

Another reason for unemployment is the market power

of unions
Other reason for unemployment is the time it takes for

workers to search for jobs that best suit their tastes

and skills.

Effects on Economy
Purchasing power will fall
Reduced Money Supply
Real GDP will fall
Investment will go down
Increased Government spending on unemployment

benefits/funds
Decreased Government revenue due to less taxation

Graph of unemployment in Pakistan.

(2002-2014)

Solution of Problems
Govt. can tackle the problem of unemployment by

Monetary and Fiscal policy

Govt. should provide interest free loans to people to create

their own employment opportunities.

The age of retirement should be at least 55 years.
Remove energy crisis so that investor comes to Pakistan

thus job placement will automatically be created.

Encourage multinational companies to business in Pakistan.