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“ U N E M P LOY M E N T A F F E C T S O N I N D I A N E C O N O M I C D E V E LO P M E N T”
A N D “ S U G G E S T I O N F O R I T S I M P O RTA N C E
CONTENTS
What is unemployment?
TYPES OF UNEMPLOYMENT
CAUSES OF UNEMPLOYMENT
COST OF UNEMPLOYMENT
MEASUREMENT
SOLUTIONS
DEFINITION
“Unemployment refers to a situation in which the workers
who are capable of working and willing to work do not get
employment.”
THE LABOUR MARKET
Slopes downwards because as wages decrease firms will be demand more
Slopes upwards because as wages increase workers will be willing to work
CAUSES OF UNEMPLOYMENT – D ISEQUIL IBRIUM UNEMPLOYMENT
Unemployment is Q2-Q1 or a-b
“”At the higher wage more people are willing and able to supply themselves to the labour market but less firms are willing and able to demand – there is surplus of labour (unemployment)“”
S O LU T I O N S T O R E A L WA G E U N E M P LOY M E N T
By making changes to legislation government could reduce the power of trade unionsIf the minimum wage is preventing the market from clearing then it should be reducedEvaluation
It is difficult to reduce union power This may harm the poorest workers High income workers don’t receive the minimum
wage Reducing the living standards of low income
workers – inequitable (unfair)
DEMAND DEFICIENT OR
CYCLICAL UNEMPLOYMENT
SOLUTIONS TO DEMAND DEFICIENT UNEMPLOYMENT
This is caused by low ADNeed to increase ADAny policy that increases AD should solve the problem (Keynesian demand management policies)
Monetary policy – reduce interest rates or increase money supply
Fiscal policy – Government spends more or reduces income tax or indirect taxation
Evaluation All of these things take time Unemployment is a lagging indicator
TYPES OF UNEMPLOYMENT
Frictional unemployment
Seasonal unemployment
Structural unemployment
FRICTIONAL UNEMPLOYMENT
This is when people are between jobs or they have left
education and are waiting for their first job
It is not normally seen as a serious problem
Solutions
Unemployment benefits should not be at a
level that removes the incentive to work
Improve awareness of available jobs
SEASONAL UNEMPLOYMENT Demand for certain workers falls at certain times of the yearExamples
Tourism industryFarming
Solutions?Encourage people to take different jobs in their
off seasonReduce unemployment benefitsGreater flow of information
STRUCTURAL UNEMPLOYMENTThis is the worst type of equilibrium unemploymentIt happens due to the changing structure of an economyOne reason why it is so harmful is that it tends to result in long term unemploymentDifferent causes
New technologies replace humansDemand for a particular type of labour - lower cost labour
in other countriesChanges in consumer tastes – e.g. environmentally friendly types of energy
Structural unemployment occurs when there is a permanent fall in demand for a particular type of labour e.g. coal mining
SOLUTIONS–”STRUCTURAL UNEMPLOYMENT”
interventionist policies The key is to increase occupational mobility (allow workers to move from job to job)
An education system that trains people to be more occupationally flexible
Adult retraining programmes Government gives subsidies to firms that provide training for
workers Enhance geographic mobility by building affordable housing or
give subsidies/tax breaks Set up apprenticeship programmes to allow people to gain skills
Disadvantages Involve a high opportunity cost These policies are only effective in the long term
SOLUTIONS – STRUCTURAL UNEMPLOYMENT
interventionist policies The key is to increase occupational mobility (allow workers to move from job to job)
An education system that trains people to be more occupationally flexible
Adult retraining programmes Government gives subsidies to firms that provide training for
workers Enhance geographic mobility by building affordable housing or
give subsidies/tax breaks Set up apprenticeship programmes to allow people to gain skills
Disadvantages Involve a high opportunity cost These policies are only effective in the long term
A R E D E M A N D - S I D E P O L I C I E S O R S U P P L Y S I D E P O L I C I E S M O R E E F F E C T I V E I N R E D U C I N G
U N E M P L O Y M E N T ?If it is demand deficient then demand side policies will be requiredCreate demand and firms will demand more labourEvaluation - There are concerns with using these policies
Expansionary fiscal policy - means spending more or taxing less
Either may mean running a budget deficit (spending more than taking in from revenues)
This may not be a problem in the short run but could be in the longer run
A R E D E M A N D - S I D E P O L I C I E S O R S U P P L Y S I D E P O L I C I E S M O R E E F F E C T I V E I N R E D U C I N G
U N E M P L O Y M E N T ?Even if the reduction in taxes worked there would be a lag before it came into effectBy the time it worked the economy could have recovered and the extra AD would be inflationaryWith structural unemployment supply side policies may be better such as making sure labour is suitably skilled and flexibleIn practice it is difficult to distinguish between different types of unemploymentThe economy will likely be suffering from different types at the same timeGovernments are likely to need a combination of both
PRESENTED BY
MADE BYPerfect 10!
Definition
Diagram
Analysis
Example