ECONOMICS

13.0  Meaning of Unemployment

 

Employment refers to engagement in any type of income generating activity. A country can be said to have attained full employment if all the people who are willing and able to work are employed. Unemployment generally refers to a state / situation where factors of production (resources) are readily available and capable of being utilized at the ruling market returns/rewards but they are either underemployed or completely unengaged. Labour unemployment is considered to be a situation where there are people ready, willing and able to work at the going market wage rate but they cannot get jobs. This definition focuses only on those who are involuntarily not employed. All countries suffer unemployment but most developing countries experience it at relatively higher degree. Employment can be divided into informal and formal. Formal employment is government regulated, and workers are assured a wage and certain rights. Informal employment takes place in small, unregistered enterprises and employs the majority of the employees in Kenya. Self-employment is also mostly informal

 

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Unemployment rate shows the number of people unemployed expressed as a percentage of total labour force at a point in time i.e.

 

Number of people unemployed x100

 

Total workforce

 

13.2 Types of Unemployment

 

a)   Open involuntary unemployment: This occurs when a person is willing to work at the ruling wage rate but is not able to secure a job. This concept is particularly relevant in modern urban sector where many young people aspire to get jobs and are unable to do so.

 

b)   Disguised or „hidden‟ unemployment occurs when the work available to a given workforce is insufficient of keep it fully employed so that some members of the workforce could be withdrawn without loss of output. E.g. the civil service in many developing countries often exceeds the required number, hence the marginal product of labour in these cases is zero and does not contribute to any national output. Disguised unemployment is also common in rural areas in developing countries where agriculture is practiced. Many such individuals working in small plots of land are infact in disguised unemployment since they could be withdrawn without a fall in output because their marginal product is zero or even negative.

 

c)   General unemployment is that which is spread throughout the economy and not confined to a particular region or categories of labour.

 

d)   Structural unemployment, unlike general employment, is that which affects particular regions or categories of labour and results from an imbalance between the supply of a particular group of workers and the demand for their services. An example of how such an imbalance can occur is where technological change makes the product on which a particular industry is based obsolete or new methods of production render labour with particular skills redundant. On the demand side, changes in consumer taste, competition from substitute products or new products in different areas may be responsible.

 

e)    Seasonal unemployment: Regular seasonal unemployment is caused by annual variations in seasons, which affect economic activities in sectors such as agriculture, fisheries, construction and tourism. During peak seasons in the season, demand for labour will be very high whereas during the off-peak season, there will be a significant drop in this demand.

 

f)  Frictional unemployment: this is unemployment which arises from immobility in the labour force rather than from lack of demand for labour. It is essentially short term in nature and includes unemployment which arises when people are changing jobs or because of lack of knowledge about job opportunities. It usually takes time to match prospective employees with employers and individuals will be unemployed during the search period.

 

g)   Demand deficient or cyclical unemployment: This type of unemployment is associated with the trade cycle. During the recovery and boom phases of the trade cycle, the demand for output and labour is high and unemployment is low. On the other hand, during recession and depression, the demand for output and labor falls and unemployment rises sharply. Demand deficient unemployment can be relatively long term in nature, however it can be eradicated by demand management policies.

 

13.3 Causes of Unemployment

 

It is obvious that the unemployment situation is grim indeed. It has, therefore, to be tackled with appropriate measures and on an urgent basis. The major causes which have been responsible for the wide spread unemployment can be spelt out as under.

 

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a) Rapid Population Growth:

 

It is the leading cause of unemployment. In many developing countries, particularly in rural areas, the population is increasing rapidly. This has adversely affected the unemployment situation largely in two ways. In the first place, the growth of population directly encourage the unemployment by making large addition to labour force because the rate of job expansion could never have been as high as population growth would have required. Increasing labour force requires the creation of new job opportunities at an increasing rate. But in actual practice employment expansion has not been sufficient to match the growth of the labor force.

 

Secondly; the rapid population growth indirectly affect unemployment situation by reducing the resources for capital formation. It means large additional expenditure on their rearing up, maintenance, and education. As a consequence, more resources get used up in private consumption such as food, clothing, and shelter as well as on public consumption like drinking water, electricity medical and educational facilities. This reduces the opportunities of diverting a larger proportion of incomes to saving and investment.

 

b)   Limited land:

 

Land is the gift of nature. It is always constant and cannot expand like population growth. Since, population is increasing rapidly, the land is not sufficient for the growing population. As a result, there is heavy pressure on the land. In rural areas, most of the people depend directly on land for their livelihood. Land is very limited in comparison to population. It creates the unemployment situation for a large number of persons who depend on agriculture in rural areas.

 

c)   Seasonal Agriculture:

 

In Rural Society agriculture is the only means of employment. However, most of the rural people are engaged directly as well as indirectly in agricultural operation. But, agriculture is basically a seasonal affair that depends on rainfall. It provides employment facilities to the rural people only in a particular season of the year. For example, during the sowing and harvesting period, people are fully employed and the period between the post harvest and before the next sowing they remain unemployed. It has adversely affected their standard of living.

 

d) Fragmentation of land:

 

In many developing countries, the heavy pressure on land of large population results to the fragmentation of land. It creates a great obstacle in the part of agriculture. As land is fragmented and agricultural work is being hindered the people who depend on agriculture remain unemployed. This has an adverse effect on the employment situation. It also leads to the poverty of villagers.

 

e) Backward Method of Agriculture:

 

The method of agriculture is very backward. Till now, the rural farmers follow the old farming methods. As a result, the farmer cannot feed properly many people by the produce of his farm and he is unable to provide his children with proper education or to engage them in any profession. It leads to unemployment problem.

 

f) Decline of Cottage Industries:

 

Village or cottage industries are the only means of employment particularly of the landless people. They depend directly on various cottage industries for their livelihood. But, now-a-days, these are adversely affected by the industrialisation process. Actually, it is found that they cannot compete with modern factories in matter or production. As a result of which the village industries suffer a serious loss and gradually closing down. Owing to this, the people who work in there remain unemployed and unable to maintain their livelihood.

 

g) Defective education:

 

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The day-to-day education is very defective and is confirmed within the class room only. Its main aim is to acquire certificate only. The present educational system is not job oriented, it is degree oriented. It is defective on the ground that is more general than the vocational. Thus, the people who have getting general education are unable to do any work. They are to be called as good for nothing in the ground that they cannot have any job here, they can find the ways of self employment. It leads to unemployment as well as underemployment.

 

h) Lack of transport and communication:

 

In rural areas, there are no adequate facilities of transport and communication. Owing to this, the village people who are not engaged in agricultural work remain unemployed because they are unable to start any business for their livelihood and they are confined only within the limited boundary of the village. It is noted that the modern means of transport and communication are the only way to trade and commerce. Since there is lack of transport and communication in rural areas, therefore, it leads to unemployment problem among the villagers.

 

i) Inadequate Employment Planning:

 

The employment planning of the government is not adequate in comparison to population growth. The employment opportunities do not increase according to the proportionate rate of population growth. As a consequence, a great difference is visible between the job opportunities and population growth. On the other hand it is a very difficult task on the part of the Government to provide adequate job facilities to all the people. Besides this, the government also does not take adequate step in this direction. The faulty employment planning of the Government expedites this problem to a great extent. As a result the problem of unemployment is increasing day by day.

 

13.4Ways of Managing Unemployment

 

The measures appropriate as remedies for unemployment will clearly depend on the type and cause of unemployment. Broadly they can be divided into: demand management or demand side policies and supply side policies.

 

Demand management policies

 

These policies are intended to increase aggregate demand and, therefore the equilibrium level of national income. They are sometimes called fiscal and monetary policies. The principal policy instruments are:

 

·   Supporting declining industries with public funds

 

·   Instituting proper demand management policies that increase aggregate demand including exploiting foreign and regional export markets. This can be done by increasing government expenditure, cutting taxation or expanding the money supply.

 

·   Promoting the location of new industries in rural areas which will require an improvement of rural infrastructure.

 

Supply-side policies

 

Supply-side policies are intended to increase the economy‘s potential rate of output by increasing the supply of factor inputs, such as labour inputs and capital inputs, and by increasing productivity. They include:

 

·   Increasing information dissemination on market opportunities.

 

·   Reversing rural-urban migration by making rural areas more attractive and capable of providing jobs. This particularly is the case in developing countries where rural-non-farm opportunities offer the longest employment opportunities.

 

 

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