Unemployment-Measures,Types & Consequences
Unemployment occurs when individuals that are actively looking for work cannot find any job to do. The number of the unemployed does not include those of working age who decide not to work, e.g. full-time housewives. The working age may be from 15 years to 64 years even though there is a disparity among countries. The unemployment rate can be obtained by dividing the number of unemployed people by the number of people in the labour force. The labour force comprises those of working age who are either unemployed or employed.
Measurement of unemployment
It uses the number of individuals claiming unemployment-related benefits. It is less expensive to collect in terms of cost and time since available government records are used. However, those who are unemployed but cannot meet up with the stipulated conditions for claiming benefits are excluded, leading to an understatement of the unemployment figure. Some individuals may also claim benefits even though they are not actively looking for work; this affects the accuracy of the figure.
Labour force survey
It is a standard method of measuring unemployment. It is used by many countries and organisations such as International Labour Organisation. A survey is conducted to determine the number of working-age people actively seeking employment that will be available to take up a job in the next two weeks. This method is better than the claimant count as it includes those who are unemployed but could not meet the requirements for claiming benefits. Besides, those who are claiming benefits but not looking for work are excluded. But it is more expensive in terms of money and time.
Types of unemployment
This type of unemployment occurs when people are searching for work. It affects the young school leavers who are searching for their first jobs, previously employed people looking for another job and those trying to get another job after being fired. It is usually short-term in nature because people may just be unemployed in-between jobs.
Frictional unemployment arises from an information gap in the labour market. Employees do not know where the available jobs are and employers are not fully aware of the kind of labour available in the labour market. This gap is often bridged by the provision of information on job vacancies by government job centres and private employment agencies.
One of the factors that determine the demand for labour is the demand for the underlying product. A decrease in aggregate demand in the economy would lead to layoffs by firms. This is known as cyclical unemployment. It is normally associated with the business cycle; it rises during a recession as people lose their jobs when there is less demand for products. This type of unemployment is also known as deficient-demand unemployment.
This occurs when there is no longer any demand for a particular product or when technology makes people unwanted. The pattern of demand changes and the skills possessed by the workers are no longer relevant. For example, coal miners are no longer needed because most countries now use alternatives to coal, e.g. petrol, diesel and natural gas. Computers have replaced typewriters, thereby rendering typists irrelevant these days (technological unemployment). There may be a permanent decline in an industry located in a particular area and workers cannot easily move to other areas or other jobs (regional unemployment). Both technological and regional unemployment are forms of structural unemployment. Structural unemployment is usually long-term in nature, unlike frictional unemployment.
It is caused by changing seasons which lead to the loss of jobs in a particular period of the year. The weather conditions of a particular season may not be conducive to a business which necessitates a reduction of the workforce of the firm. The tourism and hospitality industry usually witnesses low sales in winter; therefore, the demand for labour is reduced during that period.
Costs of unemployment
Low tax revenue
There will be a reduction in direct taxes paid on the incomes of individuals because the unemployed do not earn income. Also, less consumption in the country would reduce the amount of indirect taxes accruing to the government. Consequently, less money will be available for infrastructural development.
More spending on unemployment benefits leads to a budget deficit
The government has to spend more on unemployment-related benefits in order to reduce the suffering among jobless people. This, coupled with reduced tax revenue, may result in a budget deficit. The government has to borrow to meet up with its expenditure when there is a budget deficit. Increased indebtedness of the government comes with high debt servicing costs and less money for developmental projects.
Poor living standard
An unemployed individual has no income to maintain a decent standard of living. The nutrient intake would be low due to the inability to afford a good diet. Poor diet causes poor health. And the unemployed will not be able to pay medical bills which may result in untimely death.
Mental health issues
If a person finds it difficult to secure a job for a long time, he may become frustrated and depressed. This may lead to social problems or suicidal tendencies.
Low economic output
There will be lost output if a lot of working-age individuals have no jobs. Consequently, the economy will find it difficult to reach its potential output. That is to say, the economy would be operating within its Production Possibility Curve (PPC) but not on its PPC
Low sales by firms
Sales revenue of firms will decline in a period of high unemployment due to low consumption expenditure by the unemployed people in the labour force. Profits, also, will nosedive as there may not be enough sales to cover the costs of the business.
Loss of skills
If a person becomes unemployed for a long time, he may lose his skills. This makes it more difficult for the person to get a job. In other words, the person becomes unemployable. And such a person may eventually stop looking for work and only rely on unemployment benefits which do not assure a decent living standard. This is known as hysteresis, a situation in which people get accustomed to the low standard of living associated with unemployment and do not want to take up any job again even when vacancies are available.
High crime rate
The government would have to spend more money to combat crimes in the society since some people may take to crimes in order to eke out a living.
Promotes income inequality in the economy
The gap between the rich and the poor is widened in the society as more and more people have no jobs. Only the few that have jobs could meet up with their wants while the unemployed wallow in poverty.
Benefits of unemployment
More people available for work
Unemployment makes it easy for businesses to fill their vacancies. There may be disruptions if there are not enough people to take up jobs. Disruption of production can lead to the loss of revenue and customers for businesses.
Low labour costs for businesses
In a period of high unemployment level, businesses are not pressured for higher wages. People who have jobs would want to hold on to them, no matter how small the wages are, as they may be replaced easily. Trade unions do not also have high bargaining power when the unemployment rate is high. Low labour costs for businesses may result in higher profits.
People hardly go on strike when unemployment is high. Thus, there is more industrial peace and minimal disruption to productive activities. This will ensure that the Gross Domestic Product (GDP) does not fall as a result of production stoppages in the country.
Low consumption reduces inflationary pressure
An increased unemployment rate would reduce consumption and aggregate demand. Lower aggregate demand is capable of curtailing rising prices or inflation.
Motivation to improve skills
Unemployment encourages people to acquire more skills through education and training in order to easily change their jobs and reduce the negative effect of technology on employment.