REVIEW OF RELATED LITERATURE

Definition of Unemployment

Unemployment is defined by the Bureau of Labor Statistics as people who do not

have a job, have actively looked for work in the past four weeks, and are currently
available for work. Also, people who were temporarily laid off and were waiting to be
called back to that job are included in the unemployment statistics.

Unemployment Rate in the Philippines

“The unemployment rate in January 2018 was estimated at 5.3 percent. The
unemployment rate in January 2017 was 6.6 percent. Among the regions, NCR (7.8%),
Ilocos Region (6.7%), and CALABARZON (6.7%) were the regions with the highest
unemployment rates” (PSA [Philippine Statistics Authority], 2018).

Causes of Unemployment
According to Economywatch(2010), in the set up of a modern market economy,
there are many factors, which contribute to unemployment. Causes of unemployment are
varied and it may be due to the following factors:

1. Cyclical Unemployment
Cyclical unemployment goes hand in hand with the business cycle. Higher the
GDP, lower will be the cyclical unemployment at the peak of the business cycle
and the vice versa is true when the economy is in the trough of the business cycle.
If cyclical unemployment rate stretches for an extended period, it may cause
irreparable damage to the labor force in the country.

2. Structural Unemployment
It is a well-known fact that everyday new products are being launched in the
market. As a result, the demand for certain goods and services also changes. This
 leads to increase in unemployment rate in certain sectors of the economy and
creates jobs in yet others. Under these circumstances, re employment may be
possible if the worker relocates or migrates to other sectors.

3. Agricultural Activities
It has also been observed that if there are undulations in the agricultural sector
(due to factors like low production, drought, famine or natural disaster), the effects
are felt in agribusiness. This may also be regarded as one of the factors in
unemployment.

4. Hard Core Unemployment

Hard core unemployment usually results when a worker is disabled and is not in a
position to work. The worker may also give up his job after a few days due to
dissatisfaction with the wage.

Effects of Unemployment to People

Unemployment can impact society in ways that go beyond its economic impact.
For example, unemployment can be very psychologically hard on workers. It can make a
person doubt his or her value as a person because it can bring too much stress to a
person’s life. This feeling can lead to stress within that person’s relationship with other
people (Pei, n.d.).

“The impact of losing a job on mental health was systematically studied

during the Great Depression of the 1930s, and social scientists continue to explore
how joblessness affects mood and attitudes. Loss of income increases anxie ty,
according to the Institute for Work and Health. The institute also documented the
loss of social contacts as a result of unemployment. The unemployed person's
social network shrinks and the loss of day-to-day contact with colleagues increases
the chance of isolation and results in mental health problems” (Grayson, 2015, par.
2).
Effects of Unemployment to the Economy

According to Riley (2011), there were lot of effects of unemployment to the

economy. The effects of unemployment to the economy is stated as follows:

1. Lost of Income
Unemployment normally results in a loss of income. The majority of the
unemployed experience a decline in their living standards and are worse off
out of work. This leads to a decline in spending power and the rise of falling
into debt problems. The unemployed for example may find it difficult to keep
up with their mortgage repayments.

2. Negative Multiplier Effects

The closure of a local factory with the loss of hundreds of jobs can have a
large negative multiplier effect on both the local and regional economy. One
person’s spending is another’s income so to lose well-paid jobs can lead to
a drop in demand for local services, downward pressure on house prices
and ‘second-round employment effects’ for businesses supplying the factor
or plant that closed down.

3. Loss of National Output

Unemployment involves a loss of potential national output and is a waste of
scarce resources. If some people choose to leave the labour market
permanently because they have lost the motivation to search for work, this
can have a negative effect on long run aggregate supply and thereby
damage the economy’s growth potential. Some economists call this the
“hysteresis effect”. When unemployment is high there will be an increase in
spare capacity in other words the output gap will become negative and this
can have deflationary forces on prices, profits and output.