Unemployed in Labor Force - Essay Example

Sana Osman English 8 April 2009 Unemployment Unemployment arises when there is no work for a person who is seeking work and is available for work. Unemployment rate is the method used to measure the prevalence of unemployment, and is defined as the percentage of those who are unemployed in labor force. Unemployment is also defined as a state of being willing and ale to work and actively seeking work but being without work. In earlier times unemployment was assumed to be voluntary, being idle was considered a crime and was punishable by law. However, today it is believed that the causes for unemployment of an individual are beyond the control of the worker. Unemployment can be due to various reasons, some of which are, seasonal layoffs, racial discrimination, technological advancements and changes in the industries, fluctuations in economies, and lack of required skills by the worker. Seasonal layoffs occur in the field of agriculture. The increased focus on automation due to growing technology has also increased the level of unemployment. Unemployment in developing countries is usually caused urban migration that leads the industrial development required to employ these migrants. In developed industrial nations the main cause of unemployment is due to depressions and economic recessions. "The Great Depression brought massive impoverishment. At its depths in 1933, the unemployment rate skyrocketed to over 25 per cent, a dramatic increase from the unemployment rate of slightly over 4 per cent four years earlier" (Frager and Patrias 80). Different policies of unemployment are suggested by different schools of economic thought. For example, Monetarists believe that employment will increase in the long run if inflation is controlled and growth and investment is encouraged. Keynesians believe that emphasis should be given to smoothing business cycles by controlling aggregate demand. Unemployment is of many different types, like, frictional unemployment, structural unemployment, classical employment, cyclical unemployment, and seasonal unemployment. Frictional unemployment arises when a person is searching for a job after quitting one job. Generally when a person quits one job it requires some time before he gets another job. During this time he is said to be frictionally unemployed. The problem of frictional unemployment can be minimized with the creation of competent labor markets. If this is done the time period between shifting jobs is negligible. When an economy is developed frictional unemployment is reduced as the possibility of getting a job faster is high. When a person is not qualified enough to meet the requirements of his job structural unemployment arises. In simple words, when the marginal revenue earned by an employee is less than the minimum wage paid to the employee for the particular job, it gives rise to structural unemployment. The level of structural unemployment depends on a number of factors. Structural unemployment will be lower if the mobility of labor across different jobs is higher. It also depends on the structure of n industry and the growth rate of an economy. Classical unemployment is also known as real wage unemployment. When the equilibrium full employment level falls below the wages, it gives rise to classical unemployment. In a situation where classical unemployment exists the wages are not flexible downwards, this implies that unemployment will persist for a longer time. Therefore, such wages should be set in the trade unions with manipulations. Cyclical unemployment is also called demand deficient unemployment. Cyclical unemployment takes place when the demand of workforce by the economy is low. Keynesian economists believe that this type of unemployment takes place because of disequilibrium in the economy. The name cyclical unemployment comes from the fact that this unemployment moves with the trade cycle. When the economy is in boom the demand for labor increases, and when there is an economic crisis or recession the demand for labor reduces, and the surplus labor is removed and becomes the unemployed labor force. When unemployment concentrates in a particular time of the year it in known as seasonal unemployment. Industries like fruit picking, agriculture, tourism, and hotel are common examples where seasonal unemployment is seen. When it comes to measuring unemployment economists believe in focusing on the rate of unemployment, though many people are concerned about the number of unemployed. This way the increase in the number of employed people because of an increase in the population and increase in labor force relative to the population is corrected. The unemployment rate is calculated as the unemployed workers divided by the total labor force and it is expressed as a percentage. The International Labor Organization calculates the rate of unemployment in four different ways. The Labor Force Sample Surveys is the most preferred method of calculating unemployment. This is the most accepted way of calculating unemployment as it gives very comprehensive results. It also allows calculation of unemployment by different groups like gender and race. The second method is by Official Estimates. Official Estimates are calculated by a combination of the other three methods. After the introduction of Labor Force Surveys the use of this method has reduced. Social Insurance Statistics is another way of calculating unemployment. With this method unemployment is calculated by differentiating the number of people collecting benefits of insurance and the number of persons insured representing the total labor force. This is one of the methods hat has received a lot of criticism as benefits sometime expire before a person finds work. One of the least effective ways of calculating unemployment is the Employment Office Statistics. This method includes a monthly tally of unemployed people who enter offices of employment. It is believed that high levels of unemployment are costly, not only to individuals and families of the unemployed but also to regional and local economies and national and international economies as well. A clear distinction can be made between the economic costs and social costs arising from unemployed people. Unemployment reduces the growth potential of an economy in the long run and causes a waste of economic resources. If the rate of unemployment is reduced the total national output can increase which in turn leads to an improvement in economic welfare. High rates of unemployment can impact the expenditure, taxation, and level of government borrowing per year. It results in lower tax revenues and high benefit payments. An unemployed individual not only receives benefits, he also pays no income tax. They also contribute less to indirect government taxes as they spend less. This results in a rise in government expenditure due to the low tax revenues. Workers who remain unemployed for long periods of time become de-skilled, as the markets change rapidly and their skills become out-dated. This also reduces their chances of getting employed in the future. Unemployment also leads to many social costs. "Unemployment affects individuals, families, and communities in many different ways, and people develop various strategies to cope with or adapt to their situation" (Fineman 157). There is a relation between unemployment and the rise in crime and social dislocation like increased divorce, lower life expectancy, and worsening health. Places which witness high unemployment also see a decline in spending and real income along with a rise in poverty and income inequality. There is also a risk that areas with high percentage of older workforce will suffer as they will be less attractive investment locations. This happens as the younger workforce of a particular area is more mobile than the older workforce. It is therefore clear that unemployment carries considerable social and economic costs. "These costs are greatest when long-term structural unemployment is high. Indeed many governments focus their labor market policies on improving the employment prospects of the long-term unemployed" (Tutor2u) It is important to measure the rate of unemployment in a country as important insights can be obtained with this data. This information can be of strategic importance to a country as it helps in adopting measures to reduce the level of unemployment in the country and economy. Historical data of unemployment in the United Kingdom shows that the rate of unemployment in this region has seen fluctuation in the rate of unemployment. However, in the years 2004, 2005 and 2006 there has been very less difference in the rate of unemployment. In the year 2004, the rate of unemployment in the United Kingdom was 4.7 per cent. While in 2005 there was a marginal rise, where it increased by a mere .1 per cent taking the unemployment rate to 4.8 per cent. In 2006 the Unite Kingdom saw an increase in the rate of unemployment, where it reached 5.3 per cent. In 2007 the rate of unemployment was 5.3 per cent. The unemployment rate has increased world wide due to the global economic recession. This has affected the United Kingdom as well. The unemployment increased by 0.5% over a quarter, the level was recorded 6.5% and by 1.3% over last year. According to labor force survey (LFS) 29.4 million people were employed in the period November to January. Different governments tackle unemployment in different ways. For example, roads and bridges are constructed, mines, power plants, and government transportation is increased, and people are employed to work for the government. Some governments bring in work from international companies who are willing to outsource jobs and work. This decreases the rate of unemployment. Government policies that stimulate the economy can lso bring down unemployment. We can conclude that as long as the demand supply gap exists in the labor market, unemployment will remain. The rapidity of economic growth is also one of the factors that contribute to unemployment. Works Cited Frager, Ruth A. and Patrias, Carmela. Discounted labour: women workers in Canada, 1870 1939, University of Toronto Press, 2005 Fineman, Stephen, Unemployment: personal and social consequences, Routledge, 1987 Tutor2u, economic costs of unemployment, http://tutor2u.net/economics/content/topics/unemp/costs_of_unemp.htm Read More