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1Keynesian unemployment
Cyclical or Keynesian unemployment, also known as demanddeficient unemployment, occurs when there
is not enoughaggregate demand for the labor. This is caused by a business cycle recession and wages not
falling to meet the equilibrium rate.
2. Underemployed refers to people who are working less than full-time hours but would like to work
longer
3. Long-term unemployed are people who have been unemployed for longer than 12 months.
4. Hard core unemployment
are people who are unemployed due to their personal, mental or physical characteristics.
Relation to the goods market
According to economist Edmond Malinvaud, the type of unemployment that occurs depends on the
situation at the goodsmarket, rather than that they belong to opposing economictheories. If the market for
goods is a buyers' market, i.e. sales are restricted by demand, Keynesian unemployment may ensue,
while alimiting production capacity is more consistent with classical unemployment.
Unemployment in Pakistan:
Now we see that in Pakistan what is the situation of un employment and what are its economic and social
impacts. In Pakistan labor force include all persons who are of ten years and above, and during the period
are without work, currently availablefor work and seeking for work.In Pakistan unemployment is
of structural and cyclical nature.According to Labor Force Survey 199697, the rate of openunemployment was 6.1 percent and 5.4 percent as per Labor ForceSurvey of 1994-95.
This indicates that rate of unemployment hasincreased between these two surveys by 0.7 percent
officially butunofficially unemployment is much larger than this rate.Unemployment rate in rural areas is
greater as compared to urbanareas. Because of industries there are more chances of employment in urban
areas. In Rural areas businessmen are setting up industries
due to which now rural people seek Manufacturing sector foremployment. As in rural areas there is no
proper source of earningsdue to which unemployment rate is increasing. As agriculture sectoris not
absorbing them due to adaptation of mechanical instrumentsand bad conditions. Small scale industries
are not working efficientlydue to worse economic conditions. So rural people are not findingproper
source of earning.
Unemployment rate (2001-2006):
Source: CIA World Fact book as of January 1, 2007.
If we observe the unemployment rate form 2001 to 2006, it willcome to know that unemployment rate
was 6.3 percent in 2001 andit went to 7.8 percent in the next year. From 2001 to 2006, theunemployment
rate was at its peak in 2004 as it was 8.3 percentand gradually it came down to 6.5 percent in 2006.
Privatization of industrial units very badly affected theinvestment industrial sector. The private
investors shift theircapital to other/there countries. Hence employment in theprivate sector absolutely
stopped for many years.
The higher growth rate of population is the major causes
of unemployment. The population has exceeded the optimumlevel. The resources of the country
are limited.
People of higher age, after getting retirement are ready toprovide their services at some other places
at lower wageswhich blocks the employment of educated young men.
Reemployment of civil and military high ranking offices ingovernment corporations and agencies
deprives the qualifiedmen from employment.
Bad law and order situation has slowed down the tempo
of economic activity. Investors are reluctant to make biginvestments because of continuous unrest and
violence in thecountry.
The attitude of youth towards the choice of a career is
alsounrealistic and unproductive. They want to get only somewhite-collar jobs.
Whenever there is a boom for a particular field, huge numberof people start studying about that and in
the end we seethousands of candidates against 5 to 10 job vacancies.
Costs of unemployment :
Unemployment undermines the economic and social stability of
anysociety. Societies which fail to provide gainful and secureemployment to their people invite political
instability, social unrestand economic insecurity. The link between unemployment andcrime has also
been well established.The socio-economic fall out of the high unemployment rate inPakistan is evident
from the drastic increase in the crime wave.Today robberies, dacoities and kidnapping for ransom have
becomea fearsome fixture of life in the country. The resultant lack of
civilpeace and the rule of the law undermine the very basis of all
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industrial, economic and trade activities in the country. The case
forsustainable development for employment can hardly be arguedmore forcefully.
Economic impact
From Okun's law we know that for every 2% fall in GNP relative
topotential GNP, the unemployment rate rises by 1% point. Highunemployment is a symptom of waste
for during recessions,when unemployment is high, the economy is not producing up tohigh level.
When economy is not producing sufficiently, we can
saythat we are unable to use our full resources for productionpurposes. Economy will not grow as fast
as it can if become able toproduce at high level.
Solution to Unemployment :
Suggestions
1) Govt. should make efforts to push economic growth process. For this purpose Economic Revival
Package should announce for therevival of industries sector, to stimulate production and investment.
2) Govt. should seriously try to boost exports through broadeningthe tax base and lowering tariffs.
3) Govt. should announce a package for the development of agriculture sector.
4) Beside this a number of fiscal and monetary measures shouldtake to attract industrialists
and particularly foreign investment.
5) More Technical and Vocational training facilities should beprovided. In this way unemployed people
will get the chance toenhance their skills and become able to earn reasonable income.
6) With a view to reduce unemployment; self-employment scheme should be encouraged in
true manners.At an individual level, the solution to unemployment may be as simple as getting a job, or
getting more training.Societies try a number of different measures to get as many people as possible
into work. However, attempts to reduce the level of unemployment beyond the Natural rate of
unemployment generallyfail, resulting only in less output and more
inflation.There are some theories as well which help the unemploymentremove or reduce, such as:
Philips Curve
It used to be largely believed that unemployment could be solvedusing the Philips curve. This involves
increasing inflation to reduceunemployment by fooling workers into accepting jobs at a lowerrate than
they would otherwise have done, due to the
decliningvalue of money. But Philips curve only help to reduceunemployment in short ter
Demand side
Normal markets reach equilibrium, where supply equals demand;everyone who wants to sell at the
market price can. Those who donot want to sell at this price do not; in the labor market this
isclassical unemployment. Increases in the demand for labor willmove the economy along the supply
curve, increasing wages andemployment. The demand for labor in an economy is derived fromthe
demand for goods and services. As such, if the demand forgoods and services in the economy increases,
the demand for laborwill increase, increasing employment and wages.Monetary policy and fiscal policy
can both be used to increase short-term growth in the economy, increasing the demand for labor
anddecreasing unemployment.
Supply side
However, the labor market is not efficient: it doesn't clear. Minimumwages and union activity keep
wages from falling, which means toomany people want to sell their labor at the going price but
cannot.Supply-side policies can solve this by making the labor market moreflexible. These include
removing the minimum wage and reducingthe power of unions, which act as a labor cartel. Other supply
sidepolicies include education to make workers more attractive toemployers.Supply side reforms also
increase long-term growth. This
increasedsupply of goods and services requires more workers, increasingemployment. Supply side
policies, which include cutting taxes
onbusinesses and reducing regulation, 'create Jobs and reduceunemployment' according to the 2005
Budget report.
Tax-related
One structural solution to unemployment proposes a graduatedretail tax, or "jobs levy", to firms where
labor is more expensivethan capital. This method will shift tax burden to capital intensivefirms and away
from labor intensive firms. In theory this will makefirms shift operations to a "golden mean" between
labor intensiveand capital intensive production. The excess tax revenue from the jobs levy would finance
labor intensive public projects. However, byraising the value of labor artificially above capital, this would
notencourage capital investment, the source of economic growth. Withless growth, long-run
employment would fall
Role of Government:
Official Estimates
are determined by a combination of information from one or more of the other three methods.
Theuse of this method has been declining in favor of LaborSurveys.
are the least effective being thatthey only include a monthly tally of unemployed persons
whoenter employment offices. This method also includesunemployed who are not unemployed per the
ILO definition.
Aiding the unemployed :
The most developed countries have aids for the unemployed as
partof the welfare state. These unemployment benefits includeunemployment insurance, welfare, unem
ployment compensationand subsidies to aid in retraining. The main goal of these programsis to alleviate
short-term hardships and, more importantly, to allowworkers more time to search for a good job.
Benefits of Unemployment:
Unemployment may have advantages as well as disadvantages forthe overall economy. Notably, it may
help avert runaway inflation,which negatively affects almost everyone in the affected
economyand has serious long-term economic costs. However the historicassumption that full local
employment must lead directly to localinflation has been
attenuated, as recently expanded internationaltrade has shown itself able to continue to supply lowpriced goodseven as local employment rates rise closer to full employment.The inflation-fighting
benefits to the
entire economy
arising from apresumed optimum level of unemployment has been studiedextensively. Before current
levels of world trade were developed,unemployment was demonstrated to reduce inflation, following
thePhillips curve, or to decelerate inflation, following the NAIRU/naturalrate of unemployment
theory.Beyond the benefits of controlled inflation, frictional
unemploymentprovides employers a larger applicant pool from which to selectemployees better suited
to the available jobs. The unemploymentneeded for this purpose may be very small, however, since it
isrelatively easy to seek a new job without losing one's current
one.And when more jobs are available for fewer workers (lowerunemployment), it may allow workers to
find the jobs that better fittheir tastes, talents, and needs.
As in the Marxian theory of unemployment, special interests mayalso benefit: some employers may
expect that employees with
nofear of losing their jobs will not work as hard, or will demandincreased wages and benefit. According t
o this theory,unemployment may promote general labor productivity andprofitability by increasing empl
oyers' monopsonylike power (andprofits).Optimal unemployment has also been defended as anenvironmental tool to
break the constantly accelerated growth of the GDP to maintain levels sustainable in the context of
resourceconstraints and environmental impacts. However the tool
of denying jobs to willing workers seems a blunt instrument for conservingresources and the
environment -- it reduces the consumption of theunemployed across the board, and only in the shortterm. Fullemployment of the unemployed workforce, all focused toward
thegoal of developing more environmentally efficient methods forproduction and consumption might
provide a more significant
andlasting cumulative environmental benefit and reduced resourceconsumption. If so the future
economy and workforce would benefitfrom the resultant structural increases in the sustainable level
of GDP growth.Some critics of the "culture of work" such as anarchist Bob Blacksee employment as
overemphasized culturally in modern countries.Such critics often propose quitting jobs when possible,
working less,reassessing the cost of living to this end, creation of jobs which are"fun" as opposed to
"work," and creating cultural norms where workis seen as unhealthy. These people advocate an "antiwork" ethicfor life.
Co nclusion:
By curing unemployment, there would be prosperity as well aspeace in the country. Because if the
people are employed, they arebetteroff. Although Pakistan has succeeded to decrease theunemployment rate as compared to the 80s and
90s but still theunemployment rate in the country can be curtailed by takingnecessary steps mentioned
earlier as suggestions.