MACROECONOMICS

Unemployment

Unemployment
People who would like to work but cannot find a job are not contributing to the economys production of goods and services. A job loss means a lower living standard in the present, anxiety about the future and reduced self-esteem. When a country keeps its workers as fully employed as possible, it achieves a higher level of GDP than it would if it left many of its workers standing idle.

Identifying Unemployment
Lets start by examining more precisely what the term unemployment means. Employed: this category includes those who worked as paid employees, worked in their own business, or worked as unpaid in a family members business. It also includes those who were not working but who had jobs from which they were temporarily absent because of vacation, illness or bad weather. Unemployed: this category includes those who were not employed, were available for work, and had tried to find employment during the previous 4 weeks. It also includes those waiting to be recalled to a job from which they had been laid off. Not in the labor force: this category includes those who fit neither of the first two categories, such as a full-time students, housewives or retiree. The land lords of the huge land farms who enjoy only earnings from lands but do not contribute in cultivation also category as not in labor force.

Measuring the Unemployment

Labor force: the total number of workers, including both the employed and the unemployed Labor force = number of employed + number of unemployed Unemployment rate: the percentage of the labor force that is unemployed Number of unemployed Unemployment rate = x 100 Labor force Labor-force participation rate: the percentage of the adult population that is in the labor force Labor force Labor-force participation rate = x 100 Adult population

Natural rate of unemployment

The normal rate of unemployment around which the unemployment rate fluctuates is called The deviation of unemployment from the natural rate is called cyclical unemployment. Most people who become unemployed find job for short period of time. Some people who call themselves unemployed may actually not want to work. Some people who would like to work have left the labor force after an unsuccessful search.

natural rate of unemployment.

 frictional unemployment: that results because it takes time for workers to search for the jobs that best suit their tastes and skills. Structural unemployment: that results because the number of jobs available in some labor markets is insufficient to provide jobs for everyone who wants one. This may for longer spells of unemployment. Our economy always has some unemployment is minimum-wage laws. By raising the wage of unskilled and inexperienced workers above the equilibrium level, minimum-wage laws raise the quantity of labor supplied and reduce the quantity demanded. The resulting surplus of labor represents unemployment. Reason for unemployment is the market power of unions. When union push the wages in unionized industries above the equilibrium level they create surplus of labor. Unemployment insurance is a government policy that while protect workers incomes increase the unemployment.

Causes of Unemployment

Job Search
Job search is a process by which workers find appropriate jobs given their tastes and skills. Frictional unemployment is often the result of changes in the demand for labor among different firms, it is inevitable simply because the economy is always changing. The labor force is normal in a well-functioning and dynamic market economy, but the result is some amount of frictional unemployment. Government programs try to facilitate job search in various ways. Oneway is through government-run agencies, which give out information about job vacancies. Another way is through public training programs, which aim to ease the transaction of workers from declining to growing industries and to help disadvantaged groups escape poverty. In this way economy operate more efficiently. Government program that increases the amount of frictional unemployment is unemployment insurance. This program design to offer workers partial protection against job loss. Benefits paid to the unemployed who were laid off because their previous employers no longer needed their skills.

Minimum-Wage Law
Structural unemployment results when the number of jobs is insufficient for the number of workers. Minimum wages are not the predominant reason for unemployment in our economy they have an important effect on certain group with particularly unemployment rates. When a minimum-wage law forces the wages to remain above the level that balance supply and demand, it raises the quality of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level. There is a surplus labor. Because there are more workers willing to work than there are jobs, some workers are unemployed. Most workers have wages well above the legal minimum level, it does not adjust to balance the supply and demand. It matter most for the least skilled and least experienced members of the labor force such as teenagers.

Union and collective Bargaining

A union is a worker association that bargains with employers over wages, benefits and working conditions. The process by which union and firms agree on the terms of employment is called collective bargaining. When a union bargains with a firm it asks for higher wages, batter benefits and better working conditions than the firm would offer in the absence of a union. If the union and the firm do not reach agreement the union can organize a withdrawal of labor from the firm, called a strike. Strike reduce the production, sales and profits. When a union raises the wage above the equilibrium level it raises the quantity of labor supplied and reduces the quantity of labor demanded resulting in unemployment. Critics argue both inefficient and inequitable. It is inefficient because high union wages reduce employment in unionized firms below the efficient, competitive level. It is inequitable because some workers benefit at the expense of other workers.

The theory of efficiency wages

According to this theory firms find it profitable to pay wages above the equilibrium level. High wages can improve worker health, lower worker turnover, raise worker quantity and increase worker efforts. On the other hand it also cause unemployment by raising wages above the level that balances the quantity of labor supplies and the quantity of labor demanded, create frictional unemployment in presence of surplus labor. Firms pay high wage because of following reasons: Worker Health: better paid workers eat a more nutrition diet and workers who eat a better diet are healthier and more productive. Worker Turnover: the frequency with which workers quit depend on the entire set of incentives they face, benefits they gain. The more a firm pays its workers the less often choose to leave firm. Worker Quality: when a firm pays a high wage it attracts a better pool of competent workers to apply for its jobs and increase the quality of its work force. Workers Efforts: high paid workers are more eager to keep their jobs and give workers an incentive to put forward their best efforts.

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