6.2 Employment/UnemploymentLabour Force – It is the working or *economically active population of a country. It includes people of working age who are both able and willing to work.

*non economically active people are those who are students, retired people, stay at home parents and people who do not want to work. They are not included in the labour force.

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Unemployment RateDefinition: The percentage of the total labour force that is unemployed but actively seeking employment and willing to work.

It would be the percentage of the labour force which is willing and able to work but not able to find work.

Unemployment rate = (number unemployed/labour force) X 100

6.2 Employment/Unemployment

6.2 Employment/UnemploymentTrends in Employment:Developing Nations1. Growing incomes in developing economies have given rise to greater participation of labour as labour seek paid income rather than income from traditional sources like farming and agriculture.2. As economy develops, the standard of living goes up and more have seek employment to maintain their standard of living.3. Women are increasingly moving towards paid employment as greater education gives them greater economic viability to seek employment. Also social attitude towards women have changed.

Developed Nations1. Reached economic “maturity” and as such economic growth is

harder to come by.2. Greater number of graduate with no jobs.3. Fast aging population causing labour force participation to

decrease.4. Less births giving rise to a drop in future labour force participation.

6.2 Employment/Unemployment

Pg.350 Moynihan

6.2 Employment/UnemploymentCause of Unemployment/Type of Unemployment1. Frictional – Graduates, In-between jobs (looking for jobs)

2. Seasonal – Depending on the seasons of the year (eg farming etc)

3. Demand Deficit or Cyclical unemployment – Increase or decrease in tandem with the economic cycle.

4. Structural unemployment – high wage cost, sunset industry, inmobility of labour, mismatch in skills.

5. Minimum wage – strong labour unions, government legislation.

6. Geograhical/Occupational ImmobilityPg. 351 Moynihan

6.2 Employment/UnemploymentEffects of Unemployment

OUnemployment caused by Minimum Wages Policy

6.2 Employment/UnemploymentSolving Frictional Unemployment

- Government to set up more employment offices to disseminate information about jobs and to assist the unemployed (including graduates) in gaining more knowledge of how to become more employable.

- Setting up job fairs.

6.2 Employment/UnemploymentSolving Seasonal Unemployment

- Government to make available some form of welfare to tide them over.

- Government to provide allowances (eg.transport cost, rental cost) to entice labour to other places where there are jobs are available. This solve labour immobility or regional unemployment as well.

6.2 Employment/UnemploymentSolving Demand Deficit/Cyclical Unemployment

To solve this form of unemployment, which is due to the swing of normal business/economic cycle, the government normally resorts to demand side policies to stimulate economic growth there by giving rise to more expenditure in the economy and increasing aggregate demand. Firms will increase production thereby increasing their employment of labour as well as increasing the income of labour. This can give rise to another round of increase in AD with higher income . This is called the multiplier effect.

6.2 Employment/UnemploymentTo Solve Structural Unemployment

This employment arises from high cost of production like wages, imported raw materials or existence of sunset industries etc. To solve this, government would resort to supply side policies like encouraging more R&D or grants to companies to train them to increase their productivity. This way, the economy can produce more g/s at lower GPLs thereby spurring aggregate demand for these g/s via local consumption or exports. Firms will increase production to meet this increase in aggregated demand by employing more workers.

6.2 Employment/UnemploymentSolving Minimum Wage Unemployment

- Negotiating with or reducing the powers of the unions.

- Reducing unemployment benefit.- Reducing or abolishing minimum wage policies

in a country.

6.2 Employment/UnemploymentSolving Geographical/Occupational Unemployment

- Government providing retraining so that skills can be upgraded and even be trained to work in new industries. This will reduce occupational unemployment.

- To solve graphical immobility caused by labour unwilling or unable to travel to other places that have jobs, government can give incentive for them to move like transport cost, lliving allowance etc.

The Cost of UnemploymentPersonal Cost – Lower standard of living, emotional problems, skills become less relevant with time (hysteresis) Fiscal Cost – Government has to increase handouts like social welfare and homeless accommodation etc. This will be taken out of government tax revenue which will reduce governments' ability to undertake fiscal expansionary policy when the economy is in recession. Under this circumstance, government may have to increase taxation on the citizens to obtain more tax revenues.

Cost to the Economy – Labour is unemployed and as such the economy is not operating efficiently which will translate to a waste of resources as labour remains idle.