Unemployment

(A) Types of Unemployme

nt: After the Great Depression (1929-33), two major economic problems that world economies have been facing are Unemployment and Inflation. Therefore the public authority of any nation today has the primary responsibility of minimizing the level of unemployment and aiming for the full employment condition. An equally important task of the public authority is to contain inflation.There are various types or sources of unemployment. These are the contributory causes of unemployment conditions. The main types of unemployment are:

i) Frictional Unemployment: Whenever there are frictions or some maladjustment in economic and productive activities, a part of the labor force is likely to be rendered unemployed. The frictions are caused because of a variety of factors. These include changes in the technical conditions of work, shift in the site of an industrial unit, market imperfections and want of adequate information, failure of adjustments in the supply and demand conditions etc. Normally, frictional unemployment is partial and temporary. It is partial in the sense only a part of the labor force in certain sections of the economy is rendered unemployed. Again it is temporary in the sense once the frictional forces are located and corrected the level of employment can be restored.

ii) Structural Unemployment: Whenever an economy undergoes basic structural changes there is the possibility of some part of the labor force being thrown out of employment. The long term process of economic development and growth gives rise to variety of structural changes. Considerable changes in productive activity from traditional agriculture to modern industry; transformation of rural sectors into urban units; replacement of small scale and cottage industries by large scale manufacturing units; introduction of electricity or other sources of commercial energy in place of manual and animal power are some examples of structural changes. The economy under the process of structural changes is in the condition of transition. Some workers are likely to become jobless during the process of transition. Moreover, the duration of such unemployment may also be fairly long depending upon the extent of corrective and restorative measures introduced to restrict the period of unemployment.

iii) Voluntary Unemployment: Unemployment is usually defined as a condition under which able bodied members of the working age (about 18 to 60 years) -- do not find it possible to get absorbed at the current market wage rate. But there may be some members of the society who do not satisfy all these conditions and hence remain unemployed. Even when jobs are available at current market wage rate, some may not be willing to work: they may not like the nature of the job or find the rate of wages offered to be inadequate, or they simply prefer leisure to work. In all such cases the members are said to be voluntarily unemployed. Such voluntarily unemployed individuals do not cause any problem to the public authorities. Their size in proportion to the total labor force is likely to be negligible.

Involuntary Unemployment: J.M. Keynes has used the term involuntary or forced unemployment in his General Theory. It is also known as cyclical unemployment. Historically, modern capitalist methods of production are highly susceptible to cause periodic cyclical fluctuations. These cycles create changes in the economic activities in the form of prosperity or expansion on the one hand and depression or crisis on the other. During the phase of depression a sizable proportion, sometimes 30 to 40 percent or even more, of the labor force is rendered unemployed. Under such a situation these unemployed workers are willing to accept jobs at whatever wage rate paid to them. But they fail to get employment because of depressed productive activities. It is such involuntary unemployment which is a fundamental and urgent problem that modern public authorities face. Therefore the major purpose of the modern public policy and public expenditure is to reduce or eradicate such unemployment conditions.

v) Disguised and Seasonal Unemployment: There are two other sources of unemployment. Disguised unemployment is a situation under which productivity of the working force is very low. This is because an excessive number of workers are employed than what is optimally desirable. If a small plot of land has a maximum capacity to employ six workers then if the actual number of workers attached to land exceeds this limit, some of the workers will be disgustedly unemployed. It implies that though some of the workers attached to land appear to be employed their service is not being utilized to the optimum. Their productivity is very low and even if they are detached from the land, the total output will remain unaffected. Usually disguised unemployment exists in developing countries, which are characterized by large populations and hence a surplus labor force.

Finally, the seasonal unemployment condition is likely to exist in such productive activities which can be undertaken only during specific season. Traditional agrarian economies provide work to agricultural labor mainly during the harvest season. Similarly there are certain industry or trade activities that flourish only during festival or such other seasons. Consequently job opportunities

fluctuate and reduce during off-seasons. However, such instances of unemployment do not cause a serious problem since the workers are aware and are prepared to face the situation.

(B) Rate of Unemployment: One of the important functions of the modern public authority is to reduce unemployment. This requires large-scale public spending on employment promotion schemes and on the payment of unemployment doles. So that this function can be performed promptly and satisfactorily, it is important that the information about unemployment conditions should be quickly available. This becomes possible with the help of the rate of unemployment. We can compute rate of unemployment as follows:

If we assume total labor force of the size of 40 million workers and those unemployed to be 2 million, then the rate of unemployment will be 5 percent.

Usually in every society there is a small percentage of labor force which is always in the condition of unemployment in the sense they are either seeking jobs or they are voluntarily unemployed. Such a percentage (of about 3 to 4 of the total working force) is considered the natural rate of unemployment. Public authority need not introduce any special measures to deal with such unemployment. If we assume 3 percent as a natural rate of unemployment then in the example, above 2 percent (5-3) can be said to be net unemployment of involuntary type and requires quick remedial measures. Though public unemployment programs are primarily targeted against involuntary unemployment, other forms of unemployment may also derive some indirect relief from such activities.