MACRO ECONOMICS

PROJECT
ANALYSIS REPORT
TOPIC: UNEMPLOYMENT

UNEMPLOYMENT
Unemployment is a very complex phenomenon. It is rather easy to notice but
difficult to define. Broadly, unemployment may mean lack of employment. Thus,
anybody who fails to work may be considered as being unoccupied and therefore
unemployed for the concerned period. Ordinarily, the term unemployment denotes
a condition of joblessness.
But it is not a comprehensive expression. Unemployment may be either 'voluntary'
or involuntary'. Cases of voluntary idleness do not come under unemployment in
the true sense of the term. First, there are some unemployable who cannot work
due to old age, disease or any other physical disablement Secondly, some people
may avoid work due to laziness. They are unemployed not from necessity but from
choice. In this category we may include both the "idle rich" as well as the "idle
poor", who may not like to work. Thirdly, there are some social parasites, like
thieves or pickpockets, who also may be voluntarily unemployed. It will be a
misnomer to bring such cases of voluntary unemployment under 'unemployment'.
Therefore, in modern times, by unemployment we usually mean cases of
involuntary idleness only. According to Keynes, "men are involuntarily unemployed,
if.........both the aggregate supply of labour willing to work for the current money
wage and the aggregate demand for it at that wage Would be greater than the

existing volume of employment." Unemployment has been more comprehensively

defined by A.E. Waugh. He mentions "An unemployed person is one who is able to
find work for which he is qualified, under condition that are reasonable as judged by
local standards." Unemployment thus is a case of involuntary failure to get incomeyielding, gainful work.
The meaning of unemployment varies from country to country. Unemployment in
the developed countries is different from the unemployment in this developing
countries. As has been aptly observed by Prof. P.C. Mahalanobis, "the concepts of
employment and unemployment as used in the advanced industrialized countries
are not meaningful in the case of household enterprises which constitute an
overwhelming proportion of productive activities in rural areas, in India and other
underdeveloped countries.
A self-employed person helping the household enterprise can never be unemployed
in the sense in which this, concept is used in the industrialized countries." Thus in
the predominantly agricultural economies, where work is seasonal, intermittent and
irregular, and a lot of unpaid family labour is engaged, the traditional concept of
unemployment becomes a little vague.
Ever since the beginning of the 20th century the concept of "full-employment has
drawn the attention of economists, politicians and social reformers. But the
meaning of the term has been as controversial as that of unemployment. It is
indeed most difficult to say precisely, what is meant by full-employment in different
ways. But it was Keynes, who was mainly responsible for popularizing the concept of
full-employment. Some of these definitions may be quoted here.
In the words of Beveridge, full employment means "having always more vacant jobs
than unemployed men, not slightly fewer jobs It means that the jobs are at fair
wages, of such a kind and so located that the unemployed man can reasonably be
expected to take them : it means by consequence that the normal lag between
losing one job and finding another will be very short."

Types of Unemployment:
Economists distinguish between various overlapping types of and theories of unemployment,
including cyclical or Keynesian unemployment, frictional unemployment, structural
unemployment and classical unemployment. Some additional types of unemployment that are
occasionally mentioned are seasonal unemployment, hardcore unemployment, and hidden
Though there have been several definitions of voluntary and involuntary unemployment in the
economics literature, a simple distinction is often applied. Voluntary unemployment is attributed
to the individual's decisions, whereas involuntary unemployment exists because of the socioeconomic environment (including the market structure, government intervention, and the level of

aggregate demand) in which individuals operate. In these terms, much or most of frictional
unemployment is voluntary, since it reflects individual search behavior. Voluntary unemployment
includes workers who reject low wage jobs whereas involuntary unemployment includes workers
fired due to an economic crisis, industrial decline, company bankruptcy, or organizational
restructuring unemployment.
On the other hand, cyclical unemployment, structural unemployment, and classical
unemployment are largely involuntary in nature. However, the existence of structural
unemployment may reflect choices made by the unemployed in the past, while classical (natural)
unemployment may result from the legislative and economic choices made by labour unions or
political parties. So, in practice, the distinction between voluntary and involuntary
unemployment is hard to draw. The clearest cases of involuntary unemployment are those where
there are fewer job vacancies than unemployed workers even when wages are allowed to adjust,
so that even if all vacancies were to be filled, some unemployed workers would still remain. This
happens with cyclical unemployment, as macroeconomic forces cause microeconomic
unemployment which can boomerang back and exacerbate these macroeconomic forces.
The nature, intensity, implications and dimensions of that problem of
unemployment in an advanced industrial country are not the same as in India. Even
within a country the problem will vary from one region to another region, and between the urban and rural areas. Such a classification, consequently, helps us to
understand the nature of unemployment, pinpoint on the several issues involved
and suggest appropriate policy measures.
Unemployment thus may be discussed broadly under several heads : (1) Seasonal
unemployment, (2) Frictional unemployment, (3) Disguised unemployment, (4)
Structural unemployment, (5) Cyclical unemployment, (6) Technological
unemployment. Besides, we may also discuss about (a) Visible or open
employment, (b) Educated unemployment, (c) Female unemployment, etc.

1. Seasonal Unemployment:
Seasonal unemployment is of a familiar and common type. It is caused by the time
pattern of a particular occupation. According to Beveridge, "Seasonal
unemployment means the unemployment arising in particular industries through
seasonal variations in their activity brought about by climatic changes." Seasonal
unemployment occurs due to lack of productive work during certain periods of the
year. Certain industries or occupations are seasonal in character.
Take the case of ice-cream production, which has a peak demand during the
summer. In the winter season, with a fall in the demand for ice-cream, the demand
for labour engaged in its production also falls, and seasonal unemployment takes
place. Similarly in the case of house building, bad weather causes a suspension of
work throwing the masons out of work. A sugar mill may be closed for a number of

months in a year, as the supply of sugarcane stops. Seasonal unemployment may

also be witnessed in the case of traditional and underdeveloped agriculture. For
instance, in India, the cultivators tilling the unirrigated lands very often remain idle
for 120 to 150 days in a year.
Seasonal unemployment takes place mainly due to the lack of suitable alternative
employment opportunities in the slack season. Such unemployment usually does
not lead to serious distress, as the wages in seasonal occupations are comparatively
higher, which provides for the period of unemployment. The wages of the masons
are a case in point. Another feature of seasonal unemployment is that such
unemployment is completely independent of the wishes of the workers or
employers affected.
Through the development of complementary and subsidiary industries and the
modernization of agriculture that such unemployment can be controlled.

2. Frictional Unemployment:

Frictional unemployment takes place due to the presence of economic frictions, or

bottlenecks. In a dynamic growing economy constant changes are taking place. So
the factors of production have to adapt themselves with changing circumstan ces. If
the factors of production including labour were perfectly mobile from one mode of
employment to another, there would be no unemployment. But in practice, there is
lack of geographical and occupational mobility. Labour fails to adapt and adjust with
the changes in the economy immediately. This leads to a maladjustment between
supply and demand for labour. As a consequence of this there is unemployment.
Frictional unemployment is "due to the frictions that prevent the maintenance of
perfect equilibrium in an ever-changing world, and to the inevitable lag that retards
the process of readjustment.
Frictional unemployment may take place due to several reasons. For example, it
may occur due to a change in demand. Such changes in demand may take place
either due to a mere change of consumer taste or fashion. It may also occur due to
economic progress, or introduction of new machinery and techniques. Thus when
computers are introduced to do the job of the accountants, the present accountants
would lose their jobs temporarily, till they learn how to operate the computers. Thus
as labour could not be immediately shifted from the 'declining* to the 'expanding*
industry, frictional unemployment may also occur when workers quit their present
jobs to search for better jobs.
Frictional unemployment occurs for a temporary period only. Hence the presence of
frictional unemployment should not be considered as an unhealthy sign of the
economy. According to economists like Keynes and Lerner, etc. frictional
unemployment is compatible with the concept of full employment, it (frictional

unemployment) is not a major problem because employable persons seeking work

will not, as a rule, remain unemployed for frictional reasons for more than a few
weeks or months.

3. Disguised Unemployment:
As the word suggests, disguised unemployment refers to a situation when a person
is apparently employed, but in effect unemployed. !t is a phenomenon of concealed
unemployment, not visible to the open eyes. Here it is not possible to identify as to
who are unemployed, as all "appear to be working." As Nurkse has remarked, "In an
overpopulated peasant economy, we cannot point to any person and say he is
unemployed in disguise. The people may all be occupied and no one may consider
himself idle."
The concept of disguised unemployment was originally conceived by Mrs. Joan
Robinson. Her concept of disguised unemployment is more applicable to the
advanced developed countries. According to her, "a decline in demand for the
product of the general run of industries leads to a diversification of labour from
occupations in which productivity is higher, to others where it is lower. The cause of
this diversion, a decline in effective demand, is exactly the same as the cause of
unemployment in the ordinary sense and it is natural to describe the adoption
occupations by dismissed workers as disguised unemployment."

4. Structural Unemployment:

Structural unemployment takes place because of a change or defect in the

economic structure of a country. It occurs as a result of changes in demand and

supply conditions for certain categories of labour. According to Beveridge, structural
unemployment means "the unemployment arising in particular industries or
localities through a change of demand so' great that it may be regarded as affecting
the main economic structure of a country."
Lipsey says, "As economic growth proceeds the mix of required inputs between
skilled and unskilled labourers changes as do the proportions in which final goods
are demanded. These changes impose considerable demands for readjustment on
the economy. When the adjustment does not occur fast enough so that severe
pockets of unemployment occur in areas, industries and occupations in which the
demand for factors of production is falling faster than the supply, we speak of
"structural employment". Ackley speaks in a similar vein, "The term 'structural
unemployment' usually refers to the more serious and enduring limitations of
worker mobilityusing the term mobility in the broadest sense to include mobility
as among geographical locations as among employers and industries and as among
skills and occupations.
If the people would start sporting long hair, the demand for hair cuts would
drastically decline. This would lead to large-scale unemployment among the
barbers. The agitation among the barbers in the Indian metropolitan cities a few
years ago is a case in point. Similarly at present iron ore is exported to Japan
through Paradip port. So an elaborate export industry has come up in the
neighbourhood. Once this export is stopped, many people associated with export of
iron ore would be thrown out of employment.
Structural unemployment may also be caused due to the absence of adequate
ability, skill, or training on the part of workers, although there may by vacant jobs
around. Sometimes structural unemployment may occur due to relocation of
industries. Myrdal has observed, large-scale structural unemployment in the United
States is caused by the absence of jobs that could easily be done by such workers
as are released during the process of technological development and by a lag in the
adjustment of a high percentage of young and older workersadjustment in the
point of quality to the changed labour demanded.
Structural unemployment may also be seen in the overpopulated underdeveloped
countries. "This largely arises owing to disproportionate growth of population in the
past (thereby a continuous rise in labour force in absence of mass-scale emigration)
in relation to capital formation and employment opportunities in non-agricultural
pursuits. From this point of view even disguised unemployment may be considered
as a case of structural unemployment.
There are some distinct similarities between frictional and structural unemployment,
as both arise due to a maladjustment between the demand for and supply of labour.
However, there are certain important differences between the two. Frictional

unemployment is of a shorter duration and takes place because of temporary

factors. Hence although the demand for labour may decline in certain industries this
fall in demand is counterbalanced by a rise in demand in some other industries. In
case of structural unemployment, the deficiency in demand for labour is more
permanent, extensive and deep rooted. The barriers to mobility are rather more
formidable.
According to Thomas D. Simpson structural unemployment is more heavily
concentrated among certain employment and demographic groups. It affects a
significant number of workers in certain occupations, industries, racial, and age
groups, whereas frictional unemployment tends to occur more widely. Secondly,
structural unemployment is less voluntary than frictional unemployment. However,
as Ackley observes "structural unemployment differs from frictional more in degree
than in kind."

5. Cyclical Unemployment:

Cyclical unemployment happens to be the most common type of unemployment in

an industrially developed capitalist economy. According to the classical economists,
in the long run there would be a full employment equilibrium. But in reality we find
that a capitalist economy is characterised by alternate periods of prosperity and
depression, rising economic activity and employment and sluggish business
conditions and falling employment opportunities. Cyclical unemployment is also
popularly known as Keynesian unemployment, following Keynes. Keynes has culled
this type of unemployment as involuntary unemployment. Lerner has termed this
unemployment during an economic depression s deflationary unemployment.

6. Technological Unemployment:
Technological unemployment takes place because of rapid technological
improvements. Introduction of improved machinery and labour saving know-how
has a tendency to displace labour force. Myrdal cites the example of technological
unemployment in the American agricultural sector in the fifties, when due to the
introduction of labour-saving techniques, the agricultural workers as part of the total
civilian labour force declined from 12'6 to 8'5 per cent.
Introduction of improved technology in production will lower the capital-output ratio
and the labour-output ratio. This will increase the productivity of capital and labour,
causing technological unemployment. Probably due to this reason, even now
introduction of electronic computers has always been viewed with suspicion by the
workers. In the initial periods after the industrial revolution in England, sometimes
labour riots broke out and machines used to be destroyed by the labourers, resisting
the introduction of machinery.
But is it necessarily true that mechanical improvements lead to
labour in the long run ? Since the days of Ricardo, the effects
advance on employment have led to a lot of controversy among
Myrdal, however, observes "But it is perhaps worth stating as a

displacement of
of technological
the economists.
well established

historical experience that, taking the long-term view and disregarding short
time and isolated exceptions, technological advance in the progressive
economies of the western countries has not generally caused mass
unemployment."
Thus during a period of transition there may be unemployment. But a
country can ill-afford to freeze the existing technological situation.

FULL EMPLOYMENT:

Short-Run Phillips Curve before and after Expansionary Policy, with Long-Run
Phillips Curve (NAIRU)
In demand-based theory, it is possible to abolish cyclical unemployment by
increasing the aggregate demand for products and workers. However,
eventually the economy hits an "inflation barrier" imposed by the four other
kinds of unemployment to the extent that they exist.
Some demand theory economists see the inflation barrier as corresponding
to the natural rate of unemployment. The "natural" rate of unemployment is
defined as the rate of unemployment that exists when the labour market is in
equilibrium and there is pressure for neither rising inflation rates nor falling
inflation rates. An alternative technical term for this rate is the NAIRU or the
Non-Accelerating Inflation Rate of Unemployment.
No matter what its name, demand theory holds that this means that if the
unemployment rate gets "too low," inflation will get worse and worse
(accelerate) in the absence of wage and price controls (incomes policies).
One of the major problems with the NAIRU theory is that no one knows
exactly what the NAIRU is (while it clearly changes over time). The margin of
error can be quite high relative to the actual unemployment rate, making it
hard to use the NAIRU in policy-making.
Another, normative, definition of full employment might be called the ideal
unemployment rate. It would exclude all types of unemployment that
represent forms of inefficiency. This type of "full employment" unemployment

would correspond to only frictional unemployment (excluding that part

encouraging the McJobs management strategy) and would thus be very low.
However, it would be impossible to attain this full-employment target using
only demand-side Keynesian stimulus without getting below the NAIRU and
suffering from accelerating inflation (absent incomes policies). Training
programs aimed at fighting structural unemployment would help here.
To the extent that hidden unemployment exists, it implies that official
unemployment statistics provide a poor guide to what unemployment rate
coincides with "full employment".

Causes of unemployment
Unemployment Causes and Consequences
There remains considerable theoretical debate regarding the causes, consequences
and solutions for unemployment. Classical, neoclassical and the Austrian School of
economics focus on market mechanisms and rely on the invisible hand of the
market to resolve unemployment.[citation needed] These theories argue against
interventions imposed on the labour market from the outside, such as unionization,
minimum wage laws, taxes, and other regulations that they claim discourage the
hiring of workers. Keynesian economics emphasizes the cyclical nature of
unemployment and potential interventions to reduce unemployment during
recessions. These arguments focus on recurrent supply shocks that suddenly reduce
aggregate demand for goods and services and thus reduce demand for workers.
Keynesian models recommend government interventions designed to increase
demand for workers; these can include financial stimuli, job creation, and
expansionist monetary policies. Marxism focuses on the relations between the
controlling owners and the subordinated proletariat whom the owners pit against
one another in a constant struggle for jobs and higher wages. This struggle and the
unemployment it produces benefit the system by reducing wage costs for the
owners. For Marxists the causes of and solutions to unemployment require
abolishing capitalism and shifting to socialism or communism.
According to the Keynesian economic theory, unemployment results from
insufficient effective demand for goods and services in an economy. Some believe
that structural problems and inefficiencies in the labor market cause
unemployment. Others believe that regulations like minimum wage laws imposed
on the labor market lead to unemployment. Some thinkers believe that
unemployment is a result of the law of demand and supply not being applied in case
of employing people. A decline in the demand for products or services of a company
does not result in the decrease in wages of the company employees. And this may
strike an imbalance in the economy.

Unemployed individuals have to go through a tight economic crunch. They are

unable to meet their financial obligations. This may lead to a decline in their
standard of living. Lack of funds is sure to have a deep impact on their expenses.
The consequences of employment can be as grave as homelessness due to failure
of the unemployed individuals to repay home loans or pay house rents.
Underemployment is one of the serious consequences of unemployment. On losing
jobs, people are forced to take up jobs that do not befit their skills, experience and
educational qualification. The other major consequence of unemployment is anxiety
in the minds of the unemployed people. Unemployed individuals become
pessimistic about life and may have to face psychological problems resulting from
mental stress.
Lord John Maynard Keynes wrote the General Theory of Employment, Interest and
Money as a solution to the problem of periodic unemployment faced by developed
industrial nations of the West during the great depression of the thirties. Keynesian
theory singles out deficiency of effective demand as the major cause of
unemployment and low level of income in industrial economy operations under a
laissez faire system. Deficiency of effective demand is a prominent feature of
economies undergoing depression and in order to improve the level of effective
demand in an economy. Keynes suggested policy measures like cheap money
policy, governments compensatory investment spending, deficit financing and
other fiscal methods. In essence, therefore, Keynesian economics turn out to be
economics of depression applicable to developed countries. Its applicability in
underdeveloped countries is very limited. To quote Joan Robinson: Keyness theory
has little to say directly, to the underdeveloped countries, for it was framed entirely
in the context of an advanced industrial economy, with highly developed financial
institutions and a sophisticated business class.
Though Keynesian Economics has revolutionized modern economic thinking, it has
inherent weaknesses:
It is fundamentally a capitalistic theory. It basically examines the determinants of
employment in a free enterprise economy. Though Keynes suggests government
intervention and controlled capitalism his theory fails to deal with the socialist
economic system. In communism, Keynes is as Ricardo.
Keynesian economics is, by and large, characterized as depressionary economics. It
was the outcome of the Great Depression of the Thirties. It suggested policy
measures like deficit financing to solve the problem of unemployment in a
depressionary phase of the capitalist economy. In the era of inflationary situation,
the theory has not much validity.
Keyness theory deals with short-run phenomena only. It pays little attention to the
long-run problems of a dynamic economy.
Keynesian theory is not strictly applicable to underdeveloped countries. Keynes

deals with the problem of cyclical unemployment. Underdeveloped countries have

the problem of chronic unemployment and disguised unemployment. Keynes
encouraged spending and condemned savings.But; poor countries need curbs on
spending and increase in savings for capital formation and wide-scale investment to
break the vicious circle of poverty. In short, Keyness theory is not really general in
application as Keynes claimed.
One dangerous practice is that the solution to global economic crisis and depression
in advanced capitalism was sought to be applied for solving the economic crisis of
less developed countries. In fact in the west there are arguments against Keyness
economics that it is not Keynesian economics but the Second World war revived the
world economy. Keynesian revolution succeeded the industrial revolution as an
adhoc theory of countering the industrial depression in Britain during the thirties,
just before the Second World War, became the all-encompassing theory of
development. Dennis Robertson at the out set of his Cambridge lecturers, delivered
between 1945-46 to 1956-57, warned the under graduate students about the
controversial nature of Keyness General Theory and to supplement its readings by
critical writings on the same.
Laws of economics are relative and valid for particular situations in the economic
history of a nation. To the British economists, the economic forces generated by the
industrial revolution in that country was universal and economic laws were
accordingly formulated. What was good for Britain was good for the entire world,
irrespective of differences in socio-economic conditions. But great personalities like
Arnold Toynbee argued against this dominant view and the need for region specific
models of development. His dream of this way of study never materialized because
of his premature death and lack of followers. Adam Smith advocated free trade at a
time when British manufacturing industries, particularly the textile mills had
increased their capacity through various practical innovations. Trying to universalize
economic laws has been one of the greatest disservices to the science of
economics. The attempt by the third world countries to formulate their development
plans on the basis of these economic laws has created serious imbalances in their
economy and has kept them perpetually indebted, leading to erosion of their
economic independence.
Lord John Maynard Keynes (J.M. Keynes) was a great advocate of easy money policy
and abundance of credit for economic prosperity. Keynesian prescriptions failed in
developing countries due to inelastic nature of agriculture sector and high inflation.
Keynes found D.Robertsons ideas inconvenient and chose to ignore it. An
academically and theoretically sound thesis will not shy away from an academic
debate. The relation between agriculture and industry does not form a part of the
theoretical frame work of the General Theory of Keynes. Keynes was highly
intolerant of his critics and he had high hope in capitalism and he could avoid
economists jumped into Marxist band wagon. Indian planning was over influenced
by Keynesian school because of the economic experts trained in British Universities

or Anglo-Saxon schools. In India Dr.B.S.Minhas resigned from Planning Commission

protesting against high inflationary practice (Keynesian model of deficit
financing).But no one from the academic world or Planning Commission came to his
support. It is of importance to note that deficit financing started with the
recommendation of the IMF in its report in 1953.N.Kaldor says that the deficit
financing imply a corresponding increase in privately owned wealth.

CONCLUSION:
Although the policy measures suggested by the Keynesian theory may not be
suitable to the problems of underdeveloped countries, it does not mean that
Keynesian economics has no significance. Indeed, Keynesian methodology of
thinking in macro-economic terms is very essential and appropriate in
understanding the major problems of any economy, whether developed or
developing. However, in view of the changing institutional set-up of the developing
economies during the process of planning and socio-economic reforms, Keynesian
tools have to be adopted with suitable modifications.

Consequences of Unemployment:
Governments are always trying to reduce the level of unemployment, but
why? What is so bad about not working? Well, the effects of unemployment
can be roughly split into direct and indirect effects:

Direct Effects
* Fall in National Output - Labour, remember, is a factor of
production. Hence, a fall in the overall supply of labour caused by higher
levels of unemployment will result (cp) in a fall in national output. However,
if the unemployment is caused by factor substitution i.e. labour is substituted
by new machinery, then a fall in National Output may not necessarily result.
* Loss of personal income - Those not working will encounter a fall

in their living standards, as their income falls. The unemployed will have less
purchasing power, and less disposable income. Of course, the dole may in
fact provide more income than working, and the increased free time may be
considered more valuable than working, though this is in the extreme
minority

Indirect Effects
* Negative Multiplier Effect - Unemployed individuals, as
mentioned above, are not able to spend as much money on goods and
services, so a negative multiplier effect may result. For example, local

businesses may suffer as a result of recent job losses in an area, meaning

that purchases from suppliers will fall, and so on. Many areas where large job
losses have occurred experience this effect, unless governments intervene.

* Loss of tax revenue - A fall in income results in a fall both in

direct and indirect taxes. Why? Direct taxes come from wages, whilst indirect
taxes come from the products those wages would have been spent on. As a
result, governments must either raise the level of tax on existing wage
earners, or reduce government spending (or borrow, which is unpopular but
not necessarily always a bad idea). Both policies have a depressive effect on
the economy.
* Society - Inequalities in wealth and income, and high unemployment
have been shown to be linked to negative social effects, such as high crime
rates in these areas. The lack of money to spend on private health care,
healthy goods and living, means that those who are unemployed often lead
less healthy lifestyles and have less backup when things go wrong. Also,
children from unemployed households often have had poorer education and
hold fewer skills than average, upon entering work, meaning that high
unemployment levels can be self-perpetuating through time.

EFFECTS
COSTS:
Individual:
Unemployed individuals are unable to earn money to meet financial
obligations. Failure to pay mortgage payments or to pay rent may lead to
homelessness through foreclosure or eviction.[82] Across the United States
the growing ranks of people made homeless in the foreclosure crisis are
generating tent cities.[83]
Unemployment increases susceptibility to
malnutrition, illness, mental stress, and loss of self-esteem, leading to
depression. According to a study published in Social Indicator Research, even
those who tend to be optimistic find it difficult to look on the bright side of
things when unemployed. Using interviews and data from German
participants aged 16 to 94 including individuals coping with the stresses of
real life and not just a volunteering student population the researchers
determined that even optimists struggled with being unemployed.[84]
Dr. M. Brenner conducted a study in 1979 on the "Influence of the Social

Environment on Psychology." Brenner found that for every 10% increase in

the number of unemployed there is an increase of 1.2% in total mortality, a
1.7% increase in cardiovascular disease, 1.3% more cirrhosis cases, 1.7%
more suicides, 4.0% more arrests, and 0.8% more assaults reported to the
police.[85] A more recent study by Christopher Ruhm[86] on the effect of
recessions on health found that several measures of health actually improve
during recessions. As for the impact of an economic downturn on crime,
during the Great Depression the crime rate did not decrease. Because
unemployment insurance in the U.S. typically does not replace 50% of the
income one received on the job (and one cannot receive it forever), the
unemployed often end up tapping welfare programs such as Food Stamps or
accumulating debt.
Not everyone suffers equally from unemployment. In a prospective study
of 9570 individuals over four years, highly conscientiousness people suffered
more than twice as much if they became unemployed.[87] The authors
suggested this may be due to conscientious people making different
attributions about why they became unemployed, or through experiencing
stronger reactions following failure.
Some hold that many of the low-income jobs are not really a better option
than unemployment with a welfare state (with its unemployment insurance
benefits). But since it is difficult or impossible to get unemployment
insurance benefits without having worked in the past, these jobs and
unemployment are more complementary than they are substitutes. (These
jobs are often held short-term, either by students or by those trying to gain
experience; turnover in most low-paying jobs is high.)
Another cost for the unemployed is that the combination of
unemployment, lack of financial resources, and social responsibilities may
push unemployed workers to take jobs that do not fit their skills or allow
them to use their talents. Unemployment can cause underemployment, and
fear of job loss can spur psychological anxiety.

Social:
An economy with high unemployment is not using all of the resources,
specifically labour, available to it. Since it is operating below its production
possibility frontier, it could have higher output if all the workforce were
usefully employed. However, there is a trade-off between economic
efficiency and unemployment: if the frictionally unemployed accepted the
first job they were offered, they would be likely to be operating at below their
skill level, reducing the economy's efficiency.

During a long period of unemployment, workers can lose their skills, causing
a loss of human capital. Being unemployed can also reduce the life
expectancy of workers by about 7 years [89]
High unemployment can encourage xenophobia and protectionism as
workers fear that foreigners are stealing their jobs.[90] Efforts to preserve
existing jobs of domestic and native workers include legal barriers against
"outsiders" who want jobs, obstacles to immigration, and/or tariffs and
similar trade barriers against foreign competitors.
High unemployment can also cause social problems such as crime; if people
don't have as much disposable income as before, then it is very likely that
crime levels within the economy will increase.

Socio-Political
High levels of unemployment can be causes of civil unrest, in some cases
leading to revolution, and particularly totalitarianism. The fall of the Weimar
Republic in 1933 and Adolf Hitler's rise to power, which culminated in World
War II and the deaths of tens of millions and the destruction of much of the
physical capital of Europe, is attributed to the poor economic conditions in
Germany at the time, notably a high unemployment rate[91] of above 20%;
see Great Depression in Central Europe for details.
Note that the hyperinflation in the Weimar republic is not directly blamed for
the Nazi rise the Inflation in the Weimar Republic occurred primarily in the
period 192123, which was contemporary with Hitler's Beer Hall Putsch of
1923, and is blamed for damaging the credibility of democratic institutions,
but the Nazi party only assumed government in 1933, 10 years after the
hyperinflation but in the midst of high unemployment.

BENEFITS:
Unemployment may have advantages as well as disadvantages for the
overall economy. Notably, it may help avert inflation, which is argued to have
damaging effects, by providing (in Marxian terms) a reserve army of labour,
which keeps wages in check.
However the direct connection between full local employment and local
inflation has been disputed by some due to the recent increase in
international trade that supplies low-priced goods even while local
employment rates rise to full employment.[92]
The inflation-fighting benefits to the entire economy arising from a presumed

optimum level of unemployment has been studied extensively. Before

current levels of world trade were developed, unemployment was
demonstrated to reduce inflation, following the Phillips curve, or to
decelerate inflation, following the NAIRU/natural rate of unemployment
theory, since it is relatively easy to seek a new job without losing one's
current one. And when more jobs are available for fewer workers (lower
unemployment), it may allow workers to find the jobs that better fit their
tastes, talents, and needs.
As in the Marxist theory of unemployment, special interests may also benefit:
some employers may expect that employees with no fear of losing their jobs
will not work as hard, or will demand increased wages and benefit. According
to this theory, unemployment may promote general labour productivity and
profitability by increasing employers' monopsony-like power (and profits).
Optimal unemployment has also been defended as an environmental tool to
brake the constantly accelerated growth of the GDP to maintain levels
sustainable in the context of resource constraints and environmental
impacts. However the tool of denying jobs to willing workers seems a blunt
instrument for conserving resources and the environmentit reduces the
consumption of the unemployed across the board, and only in the short term.
Full employment of the unemployed workforce, all focused toward the goal of
developing more environmentally efficient methods for production and
consumption might provide a more significant and lasting cumulative
environmental benefit and reduced resource consumption.[93] If so the
future economy and workforce would benefit from the resultant structural
increases in the sustainable level of GDP growth.
Some critics of the "culture of work" such as anarchist Bob Black see
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 work is seen as unhealthy. These people
advocate an "anti-work" ethic for life.

Policies to reduce Unemployment:

Government policies to reduce unemployment must be based upon the types
and causes of unemployment that are prevalent. It may be worth glancing
back to that section to remind yourself of the major kinds of unemployment;
however, we will go into more detail in this section. General policies such as
cuts in direct taxes so should be effective across any kind of unemployment,
as it increases the appeal of any job to any potential employee. Real Wage
Unemployment

This is unemployment as a result of a kind of market failure, a failure of the

labour market to respond to changes in demand. If demand for workers rises,
it is logical that they will demand greater real wages (diagram). Similarly, if
demand falls, workers should expect to suffer lower real wages for the same
work. Unfortunate though it may seem, that is the way the market works!
Real wage unemployment is usually caused by a combination of:

* Strong trade unions - giving employees greater power over

deciding wage conditions with the threat of industrial action (strikes etc.)
With strong unions, firms will not be able to reduce wages when demand is
low, leading to bankruptcy (unemployment) or layoffs of workers
(unemployment)
* Wage 'stickiness' - Employees on long term contracts will have a
fixed wage over a long period of time. If a downturn in demand occurs,
wages cannot fall immediately in response - they are 'sticky'
* Minimum wage - This is a characteristic of most modern economies,
guaranteeing every worker a minimum standard of living. Whilst this is
undoubtedly wonderful, if the minimum wage is set too high, the labour
market is once again inflexible
Government policies to tackle this form of unemployment are invariably
unpopular for workers, as their wage levels are threatened to the benefit of
firms and businesses. However, it is largely appreciated that, for example,
overly strong trade unions can utterly paralyse an economy (see Margeret
Thatcher's time as Prime Minister in the UK). Policies to combat real wage
unemployment include trade union reform (reducing their powers),
increasing firms' ability to change wages and encouraging shorter term
contracts and ensuring that the minimum wage level does not adversely
impact the economy.

Frictional Unemployment
Remember, this is unemployment generated through incomplete information
of the labour market. This can be solved in two main ways. Firstly, increasing
the knowledge of the local vacancies through government funded 'job
centres' could reduce time between jobs. Secondly, increasing the incentive
to search for suitable jobs (such as reducing unemployment benefits and
lower taxes on wages) could serve the dual purpose of increasing incentives
to search for work, and making more vacancies acceptable to the
unemployed individuals.

Cyclical Unemployment

It is worth noting that this form of unemployment can also be known as

Keynesian or demand-deficient unemployment. Over the economic cycle
demand changes, and regardless of how flexible wages are, unemployment
will rise of fall (diagram). There are clear links between the rate of economic
growth and the level of unemployment. It is clear that in a depression,
unemployment will rise, as demand for good and services falls. This could
result in a negative multiplier effect, without government intervention.
Policies to reduce the impact of Keynesian unemployment include:
* Increased government spending - this includes reductions in taxes.
Increased G will cause an outward shift in AD, and may create a multiplier
effect. Theoretically, government spending to pay workers to dig huge
trenches and fill them in again will help, as it increases national income.
However, targeted policies to increase the quality of infrastructure or levels
of investment will be more effective. Also, reductions in direct taxes will
encourage more people into work, and also increase the level of disposable
income, hopefully leading to a positive multiplier effect
* Reduction of interest rates - remember that a fall in interest rates can
also stimulate AD. Return to that section to remind yourself that a fall in
interest rates encourages consumption and investment

Geographical Unemployment:
Naturally, policies to reduce geographical unemployment will seek to
decrease geographical immobility of labour. This is the inability of people to
relocate from areas with low demand for labour, to areas with high demand
for labour. Policies to reduce geographical unemployment include:
* Regional Incentives - this is regional policy to increase the incentives
for new businesses to locate in areas of high unemployment, thus reducing
regional variations in unemployment caused by geographical immobility
* Reducing geographical immobility - is the second and more direct
method of combatting geographical unemployment. It aims to reduce
geographical immobility by reducing barriers to free movement of workers
(such as no border controls and cheap housing). This is more difficult within a
country as the barriers are often social in nature, such as family ties.

Structural Unemployment
This is the inability of workers to change the kind of employment (for
example from manufacturing to IT) they are in. Left without intervention, this
could lead to dangerous long term unemployment, whereby workers find it
increasingly difficult to find jobs as they become less desirable the longer
they are unemployed. Policies to reduce occupational unemployment
include:

* Retraining - incentives for both companies to retrain and employees to

take part in training to make them more attractive and useful to firms.
Governments may also directly take part in retraining projects where
unemployment levels as a result of structural unemployment are very high
* Reducing geographical immobility - could result in no need for
retraining programs, as worker could simply move to an area in which their
skills are in high demand. This works providing the costs associated with
reducing geographical immobility are lower than those required for
occupational-orientated projects such as retraining, and that their skills are
in demand somewhere.

How is Unemployment Measured?

Macroeconomic unemployment is typically measured and comes to be known
repeatedly as unemployment rate. But what exactly is unemployment rate?
How is it measure?
The unemployment rate (UR) expresses the number of people unemployed
as a percentage of the labor force (LF).
With labor force (LF) comprising of all unemployed (U) and employed (E)
people, that is,
LF = U + E
we have unemployment rate or UR, expressed as
UR = U / LF * 100%
In a case of 100,000 people in the labor force and 10,000 of whom are
unemployed (lost jobs and actively seeking one), the unemployment rate
would be calculated as
UR = U / LF * 100% = 10,000 / 100,000 * 100% = 10%
In addition to labor, land and capital can also be unemployed. With a little
common sense, we would expect that a high unemployment rate of labor
would result in a low level of utilization of capital, land and other forms of
production factors, simply because men are the operators that make these
things work for the economy and produce economic value. If more men are
laid off their work, more resources are left to rot rather than utilized in
production.

In case you are confused with concepts like labor force, not in labor force,
employed or unemployed used in this section, please refer back to the
beginning section What is unemployment anyway? for clarification. And if
theres no problem we will have a look at the compositions of both the adult
population and the labor force of United States in 2006 below to have a
better grip of where unemployment stands in the economy.

Unemployment in Developed and

Developing countries
The developed/advanced countries have developed economies. They have
technological improvements, excellent roads, a steady government etc. This
level of economic development usually translates into a High GDP per capita
(average income), Good education, Good health-care, and Death & birth rate
are almost the same.
Those countries with well developed industries,high proportion of
their

populations living in urban areas and agriculture which is likely to be highly

mechanised and with little or no subsistence farming is called Developed
countries.
We took Japan as a developed country for unemployment.

ECONOMY OF JAPAN:
The economy of Japan is the third largest in the world after the United
States and the People's Republic of China but ahead of Germany at 4th.
According to the International Monetary Fund, the country's per capita GDP
was at $32,608 or the 23rd highest in 2009.
For three decades from 1960, Japan experienced rapid economic growth,
which was referred to as the Japanese post-war economic miracle. With
average growth rates of 10% in the 1960s, 5% in the 1970s, and 4% in the
1980s, Japan was able to establish and maintain itself as the world's second
largest economy since 1968, until supplanted by the People's Republic of
China in 2010. However, in the second half of the 1980s, rising stock and real
estate prices caused the Japanese economy to overheat in what was later to
be known as the Japanese asset price bubble. The economic bubble came to
an abrupt end as the Tokyo Stock Exchange crashed in 1990-92 and real
estate prices peaked in 1991. Growth in Japan throughout the 1990s at 1.5%
was slower than growth in other major developed economies, giving use to
the term Lost Decade.
The problems of the 1990s may have been exacerbated by domestic policies
intended to wring speculative excesses from the stock and real estate
markets. With government efforts to revive economic growth throughout the
1990s unsuccessful, Junichiro Koizumi adopted policies to promote exports,
effectively raising GDP on an average of 2.1% annually from 2003 to 2007.
Subsequently, the global financial crisis and a collapse in domestic demand
saw the economy shrunk 1.2% in 2008 and 5.0% in 2009.
A mountainous, volcanic island country, Japan has inadequate natural
resources to support its growing economy and large population. Although
many kinds of minerals were extracted throughout the country, most mineral
resources had to be imported in the postwar era. Local deposits of metalbearing ores were difficult to process because they were low grade. The
nation's large and varied forest resources, which covered 70 percent of the
country in the late 1980s, were not utilized extensively. Because of political
decisions on local, prefectural, and nation levels, Japan decided not to exploit
its forest resources for economic gain. Domestic sources only supplied
between 25 and 30 percent of the nation's timber needs. Agriculture and
fishing were the best developed resources, but only through years of

painstaking investment and toil. The nation therefore built up the

manufacturing and processing industries to convert raw materials imported
from abroad. This strategy of economic development necessitated the
establishment of a strong economic infrastructure to provide the needed
energy, transportation, communications, and technological know-how.
Deposits of gold, magnesium, and silver meet current industrial demands,
but Japan is dependent on foreign sources for many of the minerals essential
to modern industry. Iron ore, copper, bauxite, and alumina must be imported,
as well as many forest products.
Economy of Japan

Rank

3rd (nominal) / 3rd (PPP)

Currency

Japanese Yen (JPY)

Fiscal year

1 April 31 March

Trade
APEC, WTO, OECD, G-20, G8 and
organisations others
Statistics
GDP

GDP growth
GDP per

$5.073 trillion (2009) (nominal;

3rd)
$4.141 trillion (2009) (PPP; 3rd)
0.4%[1]
$39,573 (2009) (nominal; 23rd)

capita
$32,817 (2009) (PPP; 24th)
GDP by sector agriculture: 1.6%, industry: 23.1%,
services: 75.4% (2009 est.)
Inflation (CPI) -1.3% (2009 est.)
Population
13.5%[citation needed] (after taxes and
below poverty transfers)
line
Gini index
38.1 (2002)
Labour force 65.97 million (2009 est.)
Labour force agriculture: 4.4%, industry: 27.9%,
by occupation services: 66.4% (2005)
Unemploymen 5.6% (2009 est.)
t
Main
motor vehicles, industrial and
industries
transportation equipment,
electronics, chemicals, steel,
machine tools, processed foods,
nonferrous metals
Ease of Doing 18th[2]
Business Rank
External
Exports
$516.3 billion f.o.b. (2009 est.)
Main export China 18.88%, USA 16.42%, South
partners
Korea 8.13%, Taiwan 6.27%, Hong
Kong 5.49% (2009)
Imports
$490.6 billion f.o.b. (2009 est.)
Main import China 22.2%, USA 10.96%,
partners
Australia 6.29%, Saudi Arabia
5.29%, UAE 4.12%, South Korea
3.98%, Indonesia 3.95% (2009)
FDI stock
$205.4 billion (31 September 2009
est.)
Gross
204.5 trillion yen ($2.13 trillion, Jun
external debt 09)
Public finances
Public debt
192.1% of GDP (2009)

Revenues
Expenses

$1.614 trillion (2009 est.)

$1.997 trillion, including capital
expenditures (public works only) of
about $71 billion (2009 est.)
Economic aid $9.7 billion ODA (February 2007)
Foreign
$1.011 trillion (31 December 2008
reserves
est.)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US
dollars

A developing country normally has comparatively low level of affluence and

more unemployment rate. In developing countries, there is low per capita
income, poverty, less education level and low capital formation. Such
countries are fighting to get these things, but might not have reached them.
These countries are usually suffered from war, disease, poverty, natural
disasters, etc.

We took Pakistan as our developing country for unemployment.

ECONOMY OF PAKISTAN:
The unemployment rate in Pakistan was last reported at 5.50 percent in
December of 2009. From 1990 until 2009, Pakistan's Unemployment Rate
averaged 5.88 percent reaching an historical high of 8.27 percent in
December of 2002 and a record low of 3.13 percent in December of 1990.
The labour force is defined as the number of people employed plus the
number unemployed but seeking work. The nonlabour force includes those
who are not looking for work, those who are institutionalised and those
serving in the military. This page includes: Pakistan Unemployment Rate
chart, historical data and news.

Unemployment is one of the biggest problems of Pakistan. That person is

unemployed who has ability to do work and is willing to do work but is unable to get
job opportunity. In the current situation more than 30 lakh people are unemployed
in Pakistan and unemployment ratio is more than 12%.

REASONS FOR UNEMPLOYMENT:

i.

The biggest reason of unemployment in Pakistan is concerned with the

backwardness of agriculture sector. Agriculture is the biggest sector of our economy

that contributes 20.9% to GDP and 44% people get jobs from this sector directly or
indirectly. Unemployment in this sector is from two sides.
First is due to the adoption of latest machinery and capital intensive technology.
Due to this, demand for labour has been decreased. Second is the backwardness of
this sector. There is less availability of fertilisers, pesticides, quality seeds, absence
of land reforms and lack of agriculture education. Due to all these factors
agriculture sector is not expanding and there is general and disguised
unemployment.

ii.

Industrial sector is the second largest sector of our economy and contributes
19% to national income. This sector should employ a large number of labor. But due
to backwardness it is employing a small number of people. Due to electricity
breakdown already established industry is deteriorating, resulting in the prevailing
unemployment ratio.

iii.

High cost and low quality are responsible for less demand for our agri and
industrial items. Because of less demand of such kinds of goods both the domestic
and international producers are losing their interest in production. Thats why
people are becoming unemployed.

iv. In Pakistan education system is defective. There is no educational planning. This

system is producing the stuff, which is useless in technical fields of the country.
There is lack of technical and vocational institutions. Public attitude towards
education is wrong, they want to get their degrees in general and arts subjects.
Nobody can set up his own business without technical education.

v. Millions of people in Pakistan are poor. Due to poverty people are overburdened
with expenditures and their savings are very low. It is said that for the reasonable
growth of economy saving rate should be at least 25% in any country, but in
Pakistan it is only 13 to 14% which is very low. Low investment level is due to less
savings, ultimately there is unemployment.

vi. In Pakistan

majority of the businessmen are less educated. They do not know

how to run their businesses properly. So they become bankrupt. This factor
generates unemployment on a massive level.

vii. In Pakistan

there is lack of every kind of planning. There is a huge difference

between the demand and supply for labor. There is absence of such kind of planning
to produce doctors, engineers, technical experts scientists etc, according to the
need of different sectors of the economy.

viii.

Load shedding of electricity is disturbing economy, especially the industrial

sector. Due to less availability and high rates of basic inputs like electricity, gas and
oil etc, many industries have been closed.

ix.

In Pakistan, tax system is not satisfactory. Ratio of direct taxes is more than
indirect taxes. Tax evasion is common. Due to less income from the taxes,
government cannot start developmental projects. If there is no investment, then
from where public would find jobs. On the other side if government takes step to
increase indirect taxes, it would also affect investment and ultimately employment
level.

x.

Current international financial crisis is one of the biggest reason of

unemployment in Pakistan and in the whole world. This crisis originated from the
banking sector of USA, UK and some European countries and is now a global
phenomena.

xi.

Pakistans population growth rate is 1.8% which is the highest in the region.
Our resources are limited. Different sectors of economy are unable to provide jobs
to the growing population. So there is unemployment.

xii. Fiscal and monetary policies are also responsible for unemployment. In view of
fiscal policy, Pakistan has less funds to invest in job providing projects. Every annual
budget shows deficit. Through the monetary policy if the government increases the
rate of interest, it discourages the investors from getting loans.

xiii.

Political instability, bad law and order situation, armys interference, bomb
blasts, terrorism, inconsistent economic policies etc are the factors which are
disturbing domestic and foreign investment. Pakistan investors are taking away
their money to Dubai and other countries of the world.

xiv.

Due to 9/11 incident, Gulf war and the baseless allegations of terrorism the
image of Pakistan has been affected very badly at international level. So in the
current scenario Pakistan has limited job opportunities in other countries of the
world.

xv.

Craze for work only in government sector, instead of private sector and
seasonal firms, industries are also responsible for unemployment.

xvi. Since 1947, Pakistani rulers got loans from IMF, World Bank and many other
sources. Such loans were not utilised honestly. Current external debt of Pakistan is
more than 50 billion dollar. Government has to allocate a big amount for the
repayment of loans with interest. So due to less resources for developmental
projects there is unemployment.

Concluding, I would like to suggest that with proper economic planning, consistent
policies of government, better law and order situation, abolishing energy crisis,
sincerity with Pakistan and by adopting the Islamic economic system we can not
only tackle the issue of unemployment but every economic problem of our country
as well.

The Problem of Unemployment:

Pakistan has a large number of problems, the problem of unemployment stands out
as a significant one with the increase in the population, and the problem is
assuming serious proportions. We find a large number of people in Pakistan, floating
here and there in search of the jobs. Due to unavailability of proper career guidance,
Pakistan youth faces tremendous difficulties once they complete their graduations.
Definite statistics are not available on the subject, but statistics are badly required

to prove what is obvious to every one. The fact of unemployment is somewhat

hidden by the joint family system where every one is supported out of a common
pool of income, and the religious institutions which support a vast majority of
people.

We have three main types of unemployment, namely agricultural unemployment,

industrial unemployment, and unemployment amongst the uneducated people. The
causes of unemployment in agriculture are numerous. Firstly, the pressure of
population on land is increasing and the farm can no longer employ and absorb the
increased numbers. Secondly, the lack of subsidiary industries in the villages, adds
to the unemployment. Thirdly, the agricultural operations keep the farmer busy only
for a part of the year and for the rest of the months he is unemployed. This fact is
referred to as under-employment, in our agriculture. Lastly, the uncertainty and
vagaries of Pakistani Monsoons render the agriculturist unemployed whenever the
crops fail. That is why the Pakistani agriculture is said to be a gamble of the
Monsoon. Due to all the above reason, the state of unemployment in agriculture is
growing worse every day.
As far as the causes of industrial unemployment are concerned, firstly our industrial
system is unable to absorb the growing population, because the industrial
development is not commensurate either with the vast resources of the country or
with the growth of its population. Secondly, the location of industries is defective
and uneconomic. There is overcrowding in certain areas which results in the rise of
cost of production. If the geographic distribution of the industries had been
rationally planned, the industrial structure would have been more economical and
its capacity for employment would have increased tremendously. Thirdly, the
periodic occurrence of depressions in the industry brings about unemployment.
Fourthly, the export industries have not been able to maintain their hold on foreign
markets. Thus there has been a decrease in employment in the export industries
which is transmitted to other industrial sectors.
The remedy for industrial unemployment lies in stepping up industrial efficiency.
Also the scope for the developing various industries is immense. Agriculture is
already over crowded and so are the liberal professions. Thus industry is the only
hope for rooting out unemployment from the country. To achieve this, a complete
overhauling, re-orientation and rationalization our industrial system is needed.
Habib- Ur-rehman is a career adviser and helping Pakistani students about Career
Opportunities in Pakistan.

UNEMPLOYMENT IN GERMANY:

The unemployment rate in Germany is expected to rise steeply in 2010, even as the
business elite and the government prepare large-scale cuts in social spending and
other attacks on the working class.
As the Federal Employment Agency (BA) reported in Nuremberg last Tuesday, the
number of unemployed in Germany rose slightly to 3.3 million people in December
of 2009. But the federal government and labour market experts foresee a climb to
4.1 million this year as the governments extension of its short-time work allowance
scheme, which has enabled firms to avoid sacking workers, expires.

Short-time workthrough which companies compel employees to take holidays

while the firms receive subsidies from the federal labour officetogether with the
jettisoning of overtime and the imposition of flexible work schemes prevented
unemployment from rising dramatically last year. In May 2009, the BA calculated
there were 1.5 million short-time workers. At the end of the year, it estimated there
were still about a million. The BA expects the number to be halved to 530,000 shorttime workers in 2010.
The expansion of the service sector also slowed the decline in employment in 2009.
While over 270,000 jobs in manufacturing industries were destroyed last year,
131,000 new employment positions were opened in the health sector and other
social servicesmostly low-wage jobs. The loss of full-time positions was also partly
offset by the creation of 250,000 new part-time jobs.
A large section of the unemployed was not reflected in the official jobless statistics,
because people were placed in various job training schemes or did not draw
unemployment benefits.
According to the BAs calculations, Unemployment Benefit I (the support given to
the newly unemployed) was at some time unavailable to 843,000 jobless workers
last yeari.e., 102,000, or almost 14 percent, more than in the previous year.
The reason given is an increase in late registration for unemployment support,
resulting in a delay in benefits. Sacked workers have to register for benefits at least
three months before the termination of their employment. Those who are dismissed
on short notice have to inform the authorities within three days. In most cases
(about 585,000 instances), the labour agencies blocked unemployment benefit
payments for one week. However, more than 193,000 jobless people had to do
without unemployment support for twelve weeks.
The situation on the labour market is bound to deteriorate. and the chicanery dealt
out to the unemployed will intensify.
The Institute for Economic Research in Halle (IWH) expects that the number of
employed to decline by a million by 2011. Oliver Holtemller, the IWH head of

business cycle analysis, told the Beliner Zeitung that his institute expected a drop in
employment by significantly more than 700,000 this year and a further 250,000 the
following year. Holtemller said, Firms will have to increase their productivity, and
therefore many concerns will be sacking their workers.
Despite rising unemployment, the federal coalition government, consisting of the
Christian Democratic Union (CDU), the Christian Social Union (CSU) and the Free
Democratic Party (FDP), intends to cut billions of euro in the social services in the
coming years, after it awards tax gifts to the business community and the rich.
The so-called debt-brake, incorporated into the German constitution by the
previous grand coalition government of the CDU-CSU and Social Democratic Party
(SPD), obliges the current government to reduce new debt from almost 100 billion
this year to 10 billion by 2016.

Finance Minister Wolfgang Schuble (CDU) is soon to launch a rigorous austerity

program. In an interview with the APD news agency, he said that Germany needs to
adopt a fundamental change of course towards a robust and sustainable financial
policy that takes into account the requirements of future generations. He stressed,
That wont happen without spending cuts.
Although the CDU-CSU is reluctant to speak about the planned attacks openlyat
least until the state elections in North Rhine Westphalia in May this yearother
parties and interest groups are already going on the offensive.
The FDP is insisting on further tax reductions, especially for top earners. It calls for
compliance with the governing coalitions accord, which settled on annual tax relief
of about 24 billion. As the liberals (FDP) cater openly to big business and top
earners and were elected by wealthier layers, they do not feel obliged to conceal
their agenda from the unemployed and the poor.
In an interview with Hamburgs Abendblatt newspaper at the beginning of this
month, FDP parliamentary fraction head Birgit Homburger demanded adherence to
the planned tax reduction, stressing at the same time, We will maintain the debtbrake. To achieve this, she said, permanent cost-cutting measures would have to
be incorporated into the federal budget.
She suggested that cuts be made for example, in the budget of the Federal
Employment Agency or the Ministry for Families. The FDP is proposing a per capita
premium for health insurance, i.e., the same fee for every contributor. A manager
will pay exactly same amount as his servant or chauffeur, and members of a
contributors family will no longer be included in his or her insurance free of charge.
Wolfgang Franz, chairman of the federal governments council of experts for the
assessment of overall economic development (the so-called five wise men), was

already demanding at the end of last year a reduction of the basic Unemployment
Benefit II payment (the combined unemployment and general social support
entitlement) from the current 359 to 251 per month.
Franz reiterated this demand in an interview with World Online. He justified it on the
grounds of the economic crisis persisting into next year: It wont be until the end of
2012 or even 2013 at the earliest that well return to the economic performance we
had at the beginning of 2008, he said. The Federation of German Industry
calculates that this will happen only in 2014.
Franz was appointed to the council of experts in 1994, having been recommended
for the position by the trade unions. In 2003, business managers pressed for his
retention on the council, which he has headed since last year.
An interview in the Sddeutsche Zeitung with Ingrid Schmidt, president of the
Federal Labour Court, in which Schmidt defends sackings for trivial offences, should
also be seen as preparation for new attacks on social welfare. Schmidt signalled to
the business community that the highest court of industrial law was on its side.

The heads of business personnel departments will be pleased to hear such clear
words from the mouth of the president of Federal Labour Court. When they sack a
worker in the coming months, they will be able to do so without having to pay
compensation. According to Schmidts remarks, reason for dismissal will be easy to
find: a screw or biro taken home; a photocopy, telephone call or fax made for
private purposes; the stealing of electricity used to listen to a radio or charge a
mobile phone battery.
The judiciary has long done its best to maintain the appearance of non-partisanship.
But the more the social and political crisis sharpens, the more openly it reveals its
class characteras it did during the Weimar Republic.
When it comes to its own offences, the corporate elite are not so severe. Spiegel
Online reported a judgment handed down by the Higher Regional Court of Celle that
quashed the dismissal without notice of a business executive suspected of having
used a company credit card to pay for private purchases amounting to about 83.
The reason for this: Such an insignificant amount cannot justify an irregular
dismissal.
Meanwhile, compensation for outgoing managers in 2009 reached record heights
despite the economic crisis. Wendelin Wiedeking, the retiring head of the Porsche
auto concern, whose business and stock market speculation almost ruined the
sports car producer, received a record compensation of 50 million.
Karl-Gerhard Eick, boss of the insolvent Arcandor concern, was paid off with 15
million after only six months employment.

The head of Continental tyre company collected 7.4 million on his retirement, and
three months later accepted a highly paid position at Volkswagen.
The railway executive Helmet Mehdorn was given compensation amounting to 4.9
million when he was compelled to resign for abusing his employees right to data
protection.
Millions of workers are being made to feel the painful effects of the economic
downturn first hand. At the same time, the political parties and big business lecture
workers on the need to economise and tighten their beltsa classic example of the
German proverb: Preaching water, while drinking wine. As the crisis mounts,
society is showing its true class character.

WHY IS IT LOWER IN GERMANY?

The administration has argued that the more generous unemployment-insurance
program could not have had much impact on the unemployment rate because the
recession is so severe that jobs are unavailable for many people. This perspective is
odd on its face because, even at the worst of the downturn, the U.S. labor market
featured a tremendous amount of turnover in the form of large numbers of persons
hired and separated every month.

For example, the Bureau of Labor Statistics reports that, near the worst of the
recession in March 2009, 3.9 million people were hired and 4.7 million were
separated from jobs. This net loss of 800,000 jobs in one month indicates a very
weak economy -- but nevertheless one in which 3.9 million people were hired. A
program that reduced incentives for people to search for and accept jobs could
surely matter a lot here.
While the American labor force struggles with nearly 10 percent unemployment,
Germany's most recent figure of 7.6 percent unemployment signals more good
news for the largest economy in Europe:
The German unemployment rate was stable in August at 7.6 percent of the
workforce, official figures showed on Tuesday as the number of people seeking work
edged slightly lower to 3.188 million people.
"The clear rebound of the German economy continues to translate positively onto
the jobs market," a labour agency statement said.

How unemployment harms our daily lives and

the economy?
Simple with this one. Lost of income for individuals and outputs for economy
would come up first as the costs of unemployment.
For individuals and households, unemployment forces them to curtail their
consumption drastically and perhaps liquidate some of the assets often at a
loss to meet financial obligations. All these have negative impact on the
whole economy.
For economy as a whole, unemployment reduces the output of goods and
services that could otherwise have been produced by unemployed labor
force. An economy is producing substantially below its potential if
unemployment rate is extremely high, thus everybody in the society loses by
consuming and enjoying less because less is produced for distribution.
The economic loss caused by unemployment can be measured as a loss in

aggregate supply (total output) or aggregate demand (total income), more

specifically, the difference of potential GDP minus actual GDP.
Costs are not always economic, though, and its true. In non-economic
aspects, unemployed individuals might be very much discouraged for their
inability to secure jobs, and the feelings of frustration and dismay usually
lead to anti-social activities: indulgence, theft, violence, sabotage and other
forms of crime, which would pose serious problems especially if the
unemployment rate is unbearable.
Unemployment ruins family happiness also: quarrel, fight, divorce, children
losing their education and good health that would have an enduring effect
over their lives. The misery and suffering cannot be measured by economic
statistics, but they significant and as real as it gets.

COMPARABLE UNEMPLOYMENT RATE:

Because international comparisons of unemployment rates can be misleading several
organizations adjust unemployment rates to a common concept to allow accurate international
comparisons. These comparisons generally pertain to developed countries and are prepared by
the Division of International Labor Comparisons, Eurostat, and the statistical division of the
OECD.

Unemployment rate by country

Country / Region
Afghanistan
Algeria
American Samoa (United
States)
Andorra
Anguilla (United Kingdom)
Antigua and Barbuda
Argentina
Armenia
Aruba (Netherlands)
Australia
Austria
Azerbaijan

Unemployment rate (%)

Source / date of
information

35.0

2008

10.2

2009

29.8

2005

0.0
7.8
11.0
7.0
7.2
5.7
5.1
4.3
6.0

2009 (June)
2002 (July)
2001
2010
2010 (April)
2007
2010 (August)
2010 (August)
2009

Bahrain
Bangladesh
Barbados
Belarus
Belgium
Belize
Bermuda
Bhutan
Bolivia
Bosnia and Herzegovina
Botswana
Brazil
British Virgin Islands
(United Kingdom)
Brunei
Bulgaria
Burma
Cambodia
Cameroon
Canada
Canary Islands (Spain)
Cape Verde
Cayman Islands (United
Kingdom)
Central African Republic
Chile
China, People's Republic of
Cocos (Keeling) Islands
(Australia)
Colombia
Comoros
Cook Islands (New Zealand)
Costa Rica
Croatia
Cuba
Cyprus
Czech Republic
Denmark
Djibouti
Dominica

3.7
5.0
9.4
0.9
8.7
8.2
4.5
4.0
7.4
43.4
7.5
6.1

2010 (February)
2009
2009
2009 (December)
2010 (August)
2008 (May)
2009 (May)
2009
2009
2010 (August)
2007
2010 (October)

3.1

2007

3.7
10.1
4.9
1.68
4.4 (underemployment - 75.8)
30.0 (CIA estimate)
7.6
27.68
13.1

2008
2010 (August)
2009
2008

4.0 (5.5 - 2010 estimate)

2008

8.0
8.6
4.1

2001
2010 (April)
2010 (September)

60.0

2000

12.2
20.0
13.1
7.8
12.4
1.6
7.2
7.0
6.9
59.0
23.0

2010 (April)
1996
2001
2009 (October)
2010 (August)
2009
2010 (August)
2010 (August)
2010 (August)
2007
2000

2005
2010 (November)
2010 (Q1)
2010 (May)

Dominican Republic
East Timor
Ecuador
Egypt
El Salvador
Equatorial Guinea
Estonia
European Union
Faroe Islands (Denmark)
Fiji
Finland
France
French Polynesia (France)
Gabon
Gaza Strip
Georgia
Germany
Ghana
Gibraltar (United Kingdom)
Greece
Greenland (Denmark)
Grenada
Guam (United States)
Guatemala
Guernsey (United Kingdom)
Guyana
Honduras
Hong Kong (China)
Hungary
Iceland
India
Indonesia
Iran
Iraq
Ireland
Isle of Man
Israel
Italy
Jamaica
Japan

14.4
20.0
7.7
9.4
7.2
30.0
19.8
9.7
5.9
8.6
8.5
10.1
11.7
21.0
33.9
16.9
6.7
3.6
3.3
11
7.8
24.5
9.6
3.2
1.5
9.0
27.8
4.2
10.9
7.6
10.7
7.14
14.6
18.0
13.9
1.8
6.5
8.2
11.3
5.1

2010 (April)
2006
2010
2009
2009
1998
2010 (May)
2010 (April)
2010 (May)
2007
2010 (August)
2010 (August)
2007
2006
2010 (March)
2009
2010 (September)
2008 (September)
2005
2010 (March)
2009
2009 (June)
2010 (August)
2005
2010
2009 (July)
2007
2010 (July)
2010 (August)
2010 (June)
2009
2010 (February)
2009 (Q3)
2009 (February)
2010 (August)
2010 (August)
2010 (May)
2010 (August)
2009 (July)
2010 (August)

Jersey (United Kingdom)

Jordan
Kazakhstan
Kenya
Kiribati
Kosovo[a]
Kuwait
Kyrgyzstan
Laos
Latvia
Lebanon
Lesotho
Liberia
Libya
Liechtenstein
Lithuania
Luxembourg
Macau (China)
Macedonia
Malaysia
Mali
Malta
Marshall Islands
Mauritania
Mauritius
Mayotte (France)
Mexico
Federated States of
Micronesia
Moldova
Monaco
Mongolia
Montenegro
Montserrat (United
Kingdom)
Morocco
Mozambique
Namibia
Nauru
Nepal

2.7
12.2
6.1
40.0
38.2
73
1.5
8.2
2.5
20.0
10.0
22.7
85.0; 88% among young Liberians
13.0
1.5
13.4
5.0
3.0
32.2
3.2
30.0
6.2
30.9
30.0
8.4
25.4
5.5

2009 (July)
2010 (Q2)
2010 (May)
2009
2006
2010
2008 (March)
2008
2009
2010 (May)
2009 (July)
2008
2009 (July)
2005 (May)
2007 (December)
2010 (April)
2010 (August)
2010 (April)
2009
2010 (April)
2004
2010 (August)
1999
2008
2010
2005
2010 (April)

22.0

2000

9.1
0.0
12.2
20.3

2010
2005
2010
2009

6.0

1998

10.0
60.0
51.2
90.0
46.0

2010
2009
2008
2004
2008

Netherlands
Netherlands Antilles
(Netherlands)
New Caledonia (France)
New Zealand
Nicaragua
Nigeria
Niue (New Zealand)
Pakistan
Palau
Panama
Papua New Guinea
Paraguay
Peru
Philippines
Poland
Portugal
Puerto Rico (United States)
Qatar
Romania
Russia
Saint Helena (United
Kingdom)
Saint Kitts and Nevis
Saint Lucia
Saint Pierre and Miquelon
(France)
Saint Vincent and the
Grenadines
San Marino
Saudi Arabia
Senegal
Serbia
Singapore
Slovakia
Slovenia
South Africa
South Korea
Spain
Sri Lanka

4.4

2010 (September)

10.0

2008

17.1
6.8
5.9
19.7
10.7
5.2 (official) 15.2 (estimate)
4.2
7.1
1.8
7.9
7.7
8.0
9.4
10.7
15.6
0.5
8.36
9.2

2004
2010 (June)
2009
2009 (March)
2006
2008
2005
2009
2004
2009
2010 (May)
2010 (April)
2010 (August)
2010 (August)
2010 (August)
2009
2010 (March)
2010 (January)

14.0

1998

4.5
15.7

1997
2006

10.3

1999

18.0

2009 (June)

3.1
11.6
48.0;[citation needed] 30% among adults aged
24 and under
16.1
2.2
14.6
7.3
25.3
3.7
20.05
5.9

2008
2009 (amongst males)
2007
2009
2010 (March)
2010 (August)
2010 (August)
2010
2010 (April)
2010
2009

Sudan
Suriname
Swaziland
Sweden

18.7
9.5
40.6
8.5
4.0
Switzerland
Syria
9.2
Republic of China (Taiwan) 5.14
Tajikistan
60.0
Thailand
1.2
The Bahamas
12.6
Tonga
1.1
Trinidad and Tobago
5.8
Tunisia
13.3
Turkey
10.5
Turkmenistan
70.0
Turks and Caicos Islands
5.4
Ukraine
9.2
United Arab Emirates
12.7
United Kingdom
7.7
United States
9.8
Uruguay
6.9
Uzbekistan
8.0
Vanuatu
78.21
Venezuela
8.2
Vietnam
2.9
U.S. Virgin Islands (United
7.9
States)
Wallis and Futuna (France) 12.2
West Bank
16.5
Yemen
35.0
Zambia
16.0
Zimbabwe
95.0

2002
2004
2007
2010 (September)
2010 (May)
2009
2010 (May)
2008 (August)
2009 (September)
2009 (September)
2006
2009
2009
2010 (May)
2008 (November)
2007
2009 (December)
2008
2010 (November)
2010 (November)
2010 (April)
2008 (December)
1999
2010 (April)
2009 (April)
2010 (April)
2008
2010 (March)
2009 (June)
2005
2009 (June)

REFERENCES:
: http://EzineArticles.com/?expert=Habibur_U_Rehman

http://www.mbaknol.com/managerial-economics/keynesian-theory-andunderdeveloped-countries/

http://www.rajputbrotherhood.com/articlelibrary/201011235098/unemployment-andits-types.html
http://www.buzzle.com/articles/unemployment-causes-and-consequences.html
http://en.wikipedia.org/wiki/Unemployment

http://www.investorwords.com/5838/unemployment.html