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Course:Course:Introduction to ECONOMICSIntroduction to ECONOMICS

Topic: UnemployemntTopic: Unemployemnt3.00 Credit Hours, Fall 2013, 3.00 Credit Hours, Fall 2013, Undergraduate/Graduate ProgramUndergraduate/Graduate ProgramInstructor: Madiha KhalidInstructor: Madiha KhalidEmail: Madiha.khalid@uogsialkot.edu.pkEmail: Madiha.khalid@uogsialkot.edu.pk

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Unemployment

1- Introduction of unemployment

2- Causes of unemployment

3- Types of unemployment

4- Polices to reducing unemployment

5- Rate of unemployment in Pakistan

6- Solution of unemployment

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Unemployment Introduction• Unemployment is likely to be the major economic topic. Early

indications suggest that the jobless rate has begun to rise and that finding work has become harder. This is particularly the case amongst the young.

• The Australian jobless rate is predicted to rise from the present official 5.4% to 6%. Unemployment among the young is presently officially 16.8% and likely to remain at 3 times the general rate.

• The situation in many other countries, particularly in Europe, is far worse.

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Cont.…..

• The concept of unemployment has changed considerably over time. At various times in the past, for example, it has been considered inappropriate to regard women, children or the elderly as unemployed.

• Questions still arise today as to just who are to be regarded as such. Does it include those who are working part-time but would prefer full-time? Is, for example, a brain surgeon only able to find work as a laborer, a seasonal worker between jobs, or a young person opting to continue at school due to the unavailability of paid work, unemployed?

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CAUSES OF UNEMPLOYMENT IN PAKISTAN

1-Growth of Population:

•One of the major problems regarding unemployment in Pakistan is uncontrolled growth of population. The population of Pakistan is increasing at very high rate this time. According to the statistical the population of Pakistan is increasing at the rate of 2.2%.

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Cont.….

2-Poor Education System:

•The education system in Pakistan has been really poor since the creation of Pakistan. Unfortunately any government since independence didn’t take especial steps to make the education system good. It has been seen even talented students left study due to injustice of system.

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Cont.….

3-Violence and Terror Activities:

•As we all know very well that the Karachi is hub of trade and business in Pakistan. Terrorist activities in Pakistan are on peak at this time especially in Karachi, therefore situation in Karachi is really threatening and alarming and due to this the nationals and as well as foreigners are frightened to invest in Pakistan.

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Cont.….

4-Energy Crisis:

•Could you believe country with plenty of natural resources and atomic power is lacking of energy crisis? There are many sources of producing of energy in Pakistan but due to lack of proper planning and efforts Pakistan is having problem of energy crisis.

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Cont.….

5-High Age of Retirement:

•The age of retirement in Pakistan is 60 years and it is really high age of retirement and the government of Pakistan is directly responsible for this factor. There are various educated people are in wait of jobs but high age of retirement is making young ones frustrated.

•6-Afghans Refugees:

•Afghans refugee to Pakistan is the additional problem of unemployment in Pakistan. When American army attacked on Afghanistan in 2001 about 13 years ago and due to this plenty of Afghans migrated to Pakistan. The migrated people caused labor markets as they are ready to work for fewer wages.

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Key Issues

• The meaning of unemployment

• Different types of unemployment

• Consequences of unemployment

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Classification Of Unemployment

Unemployment can be broadly classified under two broad categories – VOLUNTARY UNEMPLOYMENT - Unemployment that results when resources which are willing and able to engage in production choose not to produce output. These are resources (especially labor) that decide to leave one job, often in search of another.

INVOLUNTARY UNEMPLOYMENT - The contrast to voluntary unemployment is involuntary

unemployment, in which resources are forced out of work. Involuntary unemployment is also known as

Forced Unemployment.

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TYPES OF UNEMPLOYMENT

1. Seasonal Unemployment2. Cyclical Unemployment3. Technical Unemployment4. Frictional Unemployment5. Structural Unemployment6. Disguised Unemployment7. Regional Unemployment

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Seasonal Unemployment

Seasonal unemployment refers to a situation where a number of persons are not able to find jobs during some months of the year.EXAMPLE-: Agriculture is a seasonal activity. There is an increased demand for labor at the time of sowing, harvesting, weeding and threshing. In between there is little or no demand for labor. Agricultural labor finds himself unemployed during this period. This is called seasonal unemployment.

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Cyclical unemployment

Cyclical unemployment, occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.Demand for goods and services fall, less production is needed and less workers too.If GDP is growing then unemployment would be low and vice versa.

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Technical Unemployment

Unemployment caused by technological changes or new methods of production in an industry or business. Example: The evolution of the automobile assembly plant. In the beginning, everything on the line was done by humans in order to build a car. The assembly line itself was a great technological innovation. Today, robots are employed for much of the hand-work humans used to do.

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Frictional Unemployment

Example: When you make up your mind and set off looking for a better job and abandoning the current one, you are in the frictional unemployment labor force.

The unemployment which exists in any economy due to people being in the process of moving from one job to another.

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Structural Unemployment

This unemployment arises due to structural change in dynamic economy. Unemployment caused by massive mismatch of skills or geographic location is noted as structural unemployment. Example: Heavy Manufacture (mining) - Manufacture now involves machines so humans are no longer needed for the harder work.

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Disguised Unemployment

When more people are engaged in some activity than the number of person required for that, this is called disguised unemploymentEXAMPLE:An agricultural field require 3 laborers but people engaged in this activity is 6 then this unemployment for 3 labors is called disguised unemployment

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Types of Unemployment

• Seasonal

– Regular seasonal changes in employment / labour demand

– Affects certain industries more than others

• Catering and leisure

• Construction

• Retailing

• Tourism

• Agriculture

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Types of Unemployment

• Frictional

– Transitional unemployment due to people moving between jobs: Includes people experiencing short spells of unemployment

– Includes new and returning entrants into the labour market

– Imperfect information about available job opportunities can lengthen the period of someone’s job search

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Structural Unemployment

• Structural

– Arises from the mismatch of skills and job opportunities as the pattern of labour demand in the economy changes

– Occupational immobility of labour

– Often involves long-term unemployment

– Prevalent in regions where industries go into long-term decline

– Good examples include industries such as mining, engineering and textiles

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Cyclical unemployment

• Cyclical (Keynesian)

– There is a cyclical relationship between demand, output, employment and unemployment

– Caused by a fall in aggregate demand leading to a loss of real national output and employment

– A slowdown can lead to businesses laying off workers because they lack confidence that demand will recover

– Keynes argued that an economy can become stuck with a low rate of AD and an economy operating persistently below its potential

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Real Wage Unemployment

• Real Wage Unemployment

– Created when real wages are maintained above their market clearing level leading to an excess supply of labour at the prevailing wage rate

– Some economists believe that unemployment can be created if the national minimum wage is set too high

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Recent examples of cyclical unemployment

• Recession in the UK in the early 1990s

– Unemployment rose from 1.6 million in 1989 to 2.9 million in 1993

• The recent recession in UK manufacturing industry

• Slow growth and rising unemployment in Germany

• The end of full-employment for Japan during the last ten years

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Cont.…. Lower Interest Rates

• When interest rates are decreased, savings also decrease. In return, increases a consumer’s income available for consumption & labors are hired to fulfill that increased demand.

Regional Policy Incentives

Supply side factors, the government gives grants and subsidies to firms to locate in areas of high unemployment.

Improving Geographical Mobility of Labor

Grants could provide to encourage workers and reduces the problem of structural unemployment.

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Cont.…..

Improvement in Job Information

Improving awareness in labor regarding job information is always an effective policy to reduce unemployment.

Improving Flexibility in the Labor Market

Providing more flexibility in terms of hiring and firing workers, and increased shifts or maximum working hours can help reducing unemployment.

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RATE OF UNEMPLOYMENT IN PAKISTAN

• According to the recent statistics, approximately 5.95 percent of labor force is unemployed in Pakistan

• The World Bank provides data for Pakistan from 1980 to 2008. The average value for Pakistan during that period was 4.73 percent with a minimum of 2.6 percent in 1990 and a maximum of 7.8 percent in 2002.

• The Federal Bureau of Statistics released the Pakistan Labor Force Survey 2011 on Monday, which shows the unemployment rate rising to 6% in July 2011, compared to 5.6% a year ago. The total number of unemployed rose by 280,000 people during the past year to 3.4 million.

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Cont.…..

• In absolute terms, the number of unemployed women decreased to 1.18 million from 1.21 million. The number of jobless men increased to 2.22 million from 1.91 million.

• If we give a look at the recent years in which the unemployment rate of Pakistan was 5.5 in 2010 and 5.6 in 2011 as per the claim of the officials

• but in 2013-2014 the conditions seems to be worse than the previous years because the political instability and the lack of foreign investments in the country have reduced the jobs and vacancies for the people and excessive universities which are producing thousands of students and leaving them to penetrate in the market has also affected the situation.

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SOLUTION OF UNEMPLOYMENT

• It will be tough ask for government to solve one of the major problems of Pakistan “Unemployment” due to huge population but still we have given some solutions to reduce the unemployment in Pakistan and we are hopeful by following these solutions the ratio of unemployment in Pakistan can be reduced or decreased.

The first thing to do to reduce unemployment in Pakistan is the proper planning by the government of Pakistan.

The education system of Pakistan should be equal and well managed.

Well recognized training and technical institutions are need to be established where skills programs are offered. 

The age of retirement should be at least 55 years.

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Cont.….

Remove energy crisis so that investor comes to Pakistan thus job placement will automatically be created.

There should be peace across the country so foreigners will not hesitate to invest in Pakistan.

The agriculture sector should be developed.

Jobs should be given purely on merits.

Encourage multinational companies to business in Pakistan.

Family planning centers should be opened to control the flow of over population

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Consequences of Unemployment (2)

• Economic Consequences for Businesses

– Negative consequences

• Fall in demand for goods and services

• Fall in demand for businesses further down the supply chain

• Consider the negative multiplier effects from the closure of a major employer in a town or city

– Some positive consequences

• Bigger pool of surplus labour is available – but still a problem if there is plenty of structural unemployment

• Less pressure to pay higher wages

• Less risk of industrial / strike action – fear of job losses – leading to reduced trade union power