UNEMPLOYMENT

Dr G K Kalkoti

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Unemployment - Meaning
What is unemployment ?
In general sense, unemployment is a situation in which those who are able
and willing to work at the prevailing wage rate do not find job.

A person who is :-
a) Physically Fit
b) Mentally sound
c) Well qualified
d) Willing to work at prevailing wage rate

BUT DOES NOT GET JOB, THIS SITUATION IS CALLED UNEMPLOYMENT

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Unemployment
Unemployment can be broadly classified
under two broad categories :-

Voluntary : A person who is physically fit, mentally sound and well

qualified, but is unwilling to work at prevailing wage rate.

Involuntary : A person who satisfied all the above conditions and is

willing to work at the prevailing wage rate and yet jobs are not
available. Involuntary unemployment is also known as FORCED
unemployment.

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Measurement of Unemployment
Labour Force of the country consists of those people in the age group of 15-60
years who are employed and those who are unemployed and looking for a job.
LABOUR FORCE = No of employed + No of unemployed.
Example :- India’s population – 115 Crores.
If divided in different age group
Age Group/Years Population
0 - 15 20 Crores
15-60 65 Crores
60 & Above 30 Crores

Out of age group of 15 – 60 years, approx. 40% (25 Crores) are either :-
Physically Handicapped
Mentally Retarded
Men and Women who do not want to work
This leaves approx. 40 crores who now can be employed (65 – 25 = 40 Crores)

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Labour Force
Labour Force (40 Crores)

30 Crores 10 Crores
(Employed) (Unemployed)

Therefore, Rate of Unemployment (%) = Labour Force – Employed x 100

Labour Force

= 40 – 30 x 100
40

Rate of Unemployment = 25%

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Types of Unemployment
Seasonal Unemployment

Unemployment caused because of the

seasonal nature of the employment –
Tourism, Skiing, Cricketers, Beach
Lifeguards.

e.g. Employment opportunities for beach

lifeguards are more in Summers as
compared to Winters due to the seasonality
associated with beach going people.

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Types of Unemployment
Structural Unemployment

Unemployment caused as a result of the

decline in Industries and inability of
former employee to move into jobs being
created in new industries.

e.g. As the coal industry declined, many miners

had difficulties utilizing their skills to find
work in new industries such as IT and
SERVICE SECTOR work.

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Types of Unemployment
Cyclical Unemployment

Fluctuates with the business cycle,

increasing during contractions and
decreasing during expansions.

All firms need fewer Workers.

Low total demand in the Economy

A result of a ‘recession’ or ‘slump’ in the Economy

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Types of Unemployment
Technological Unemployment

Unemployment caused when development

in technology replace human efforts e.g.
Manufacturing, Administration etc.

LOOK NO WORKERS !!!

ROBOTS RULE
WHERE HUMANS ONCE STOOD !!!

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Types of Unemployment
Disguised / Hidden Unemployment
Where output remains the same but number of people employed to
complete the Job is high e.g. In Agriculture Sector Father, Mother, Son,
Daughter working but the output remains same.

Underemployment
People are counted as employed even if they can find only part-time jobs
OR

Are vastly overqualified for their job

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Concepts of Unemployment
3 Concepts of Unemployment adopted by
NSS (National Sample Survey)

Usual Status of Unemployment

Current Weekly State of Unemployment

Daily Status of Unemployment

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Inflation and the rate of
unemployment
The relationship between inflation and employment has been a
contentious issue. The neoclassical economists held the view that
inflation does not affect the level of employment. However, in 1958.
A. W. Phillips, a British economist and a Professor at London School
of Economics, brought out a study of the relationship between
unemployment and the change in money wage rates in the British
economy during the period from 1862 to 1957. Phillips found Inverse
relationship between the rate of change in the money wage rate and
the rate of unemployment.

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Inflation & Unemployment

FIGURE 9-7
Annual Rates of Unemployment and Inflation in the United States
for 1960–2000 and Representative Phillips Curves 13
Phillips Curve
Phillips revealed in his study that there exists an inverse relationship between
the rate of change in the money wage rate and the rate of unemployment. He
presented the inverse relationship between the change in money wage rate and
the rate of unemployment in the form of a curve, called Phillips curve.
The general conclusion that is drawn from Phillips empirical finding is that a
rise in money wage rate reduces the rate of unemployment and a fall in
money wage rate increased the rate of unemployment.

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3 Factors of Phillips Curve
Three factors may help to explain shifts in the Phillips curve:

•Structural changes in the labor force

–1970s: Increase in the labor force participation rates of women and teenagers who, at the time, had
higher unemployment rates than men.
–1980s & 1990s: Rate of unemployment for women fell, the movement of teenagers into the market
reversed itself, and an increase in the rate of involuntary part-time employment.

•Cost-push inflation
–1970s & 1980s: Brought about by energy price increases

•Eligibility for government transfer payments

–Availability of transfer payments increases unemployment, and vice versa.

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Why Phillips Curve Relationship
Why is there an inverse relationship between the rate of inflation and the rate of
unemployment ? Or, how does inflation reduce the rate of unemployment or how does it
promote employment ? The inverse relationship between the wage rate and the
unemployment rate can be explained by both the demand-pull and the wage push
factors.
Demand Pull Factor :- Considering the demand pull factor first, Phillips postulated that
during demand-pull inflation, demand for Labour increases with an increase in prices.
He argues, “When the demand for labour is very high and there are very few
unemployed we should expect employers to bid wage rate up quite rapidly, each firm
and each industry being continually tempted to offer a little above the prevailing rates to
attract the most suitable labour. Therefore with the increase in the money wage rates,
the rate of unemployment decreases.
Wage-Push Factor :- Wage-Push Inflation is caused by the autonomous demand by the
labour unions for increase in wages in excess of increase in labour productivity. The
lower the rate of unemployment, the greater the union’s power to push the wages up and
vice versa. Also, the period of low unemployment is generally the sign of ‘buoyant’
product market and high profits. Therefore employers are willing to pay higher wages.
There is fast upward movement in wages and decrease in unemployment.

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Cost of Unemployment
Personal Cost
Loss of paycheck
Loss of self-esteem
Increase in stress related psychological problems
Increase incidents of crime, suicide, & mental
illness.

Economic Cost
Loss in output

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THANK YOU

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