UNEMPLOYM

ENT

AND POVERT

Y

2 MAJOR PROBLEMS OF MACROECONOMICS

• UNEMPLOYMENT

• POVERTY

UNEMPLOYMENT

MEANING :• Unemployment is the most worrisome

problem in the field of macroeconomics.

• Unemployment is doubly bad leading to loss of income/output and feeling of desperation.

• It is the fact of the life in the present world and is worst example of both market and government failure.

• Opposite to it, employment is must for a person to have some source of income for livelihood.

• There is not only a pocket of unemployed people but there is also a great degree of unemployment of capital resources ass well.

• Unemployment is often equated to that of human beings only, and this is the major concern of unemployment.

• It could be defined both In physical(Up) as well as in economic (Ue = U).

Up = population – employed people

U = work force – employed people

Where,

Workforce = population – people not in workforce

• People not in work force include children in the pre-school age group, full time students in schools/college, chronically sick people and retired persons.

• Work participation rate(equal workforce as proportion of population).

UNEMPLOYMENT RATE• The unemployment rate measures the

percentage of employable people in a country’s workforce who are over the age of 16 and who have either lost their job or have unsuccessfully sought jobs in the last month and are still actively seeking work.

• Unemployment rate= number of employed/ total labor force

• Note: If more people decide to go for a higher education, ceteris paribus, both the workforce as well as the number of people employed falls by that number and since the unemployment rate is always positive , the unemployment rate goes up.

• There is a unique unemployment rate , called the NATURAL RATE of UNEMPLOYMENT(Un) which is also known as Non- Accelerating Inflation Rate of Unemployment(NAIRU).

• This is a very relevant concept from the point of stabilization policies.

EXAMPLE:In the us, the Bureau of Labor Statistics reports the unemployment rate in its EMPLOYMENT SITUATION report, which is released on the 1st Friday of each month at 8:30 AM. The report discloses the current unemployment rate , the change in the unemployment rate, and a variety of other labor statistics. The data in the report is generated by surveys taken from almost every major industry in over 250 metropolitan areas. The Bureau conducts two surveys:

1. The household survey, which interviews 60,000 households

2. The establishment survey, which reviews data from 160,000 businesses and agencies.

It is important to distinguish between the percentage of people who are unemployed and those who are simply not working. Some people may be in school full time, working, etc. These people are not considered part of labor force and are so not included in the unemployment rate. Only those people actively looking for a job or waiting to return to a job are considered unemployed.

TYPES OF UNEMPLOYMENT

1. Voluntary unemployment

2. Involuntary unemployment

3. Open unemployment• Frictional unemployment• Cyclical unemployment• Structural unemployment

4. Hidden unemployment• Disguised unemployment• Seasonal unemployment

• underemployment

VOLUNTARY & INVOLUNTARY UNEMPLOYMENT

VOLUNTARY

• Willful unemployment

• Laziness, obsession with wealth

• No serious economic problem

• May seek job but if not found then pretend to be voluntarily unemployed to be safe from embarrassment.

INVOLUNTARY• Forced unemployment

• Willing to work, looking for job but do not find

• Caused by paucity of employment opportunities so may be economic issue.

• Wants job of particular kind, on particular terms, and at a particular place and till they find pretend to be involuntarily unemployed.

QUESTION FOR DEBATE

Consider an MBA from a fairly prestigious institution and assume that she receives just an offer which carries a salary of Rs. 8000 per month and the job is in the costly city. If this person declines the offer, is she voluntarily or involuntarily unemployed?????????

OPEN UNEMPLOYMENT: FRICTIONAL OR TURNOVER UNEMPLOYMENT• Exists when a lack of information prevents

workers and employers from becoming aware of each other.

• It is usually a side effect of the search process and may increase when unemployment benefits are attractive.

• It is the time period between jobs when a worker is searching for or transitioning from one job to another. So it is called search unemployment.

• It arises in between 2 jobs, the 1st which a person has quit in order to find the 2nd.

• Temporary and prevalent in developed countries.

CYCLICAL UNEMPLOYMENT

• It is the result of the cyclical nature of the economy and occurs whenever there is a general downturn in business activity.

• Caused: by business cycles and economic fluctuations

• Example: during droughts and floods farmers may be left unemployed and during strikes industrialists and workers may remain unemployed.

• When the economy slows down due to any such events, calamities or general recession people lose their purchasing power, which reduces sales, and thereby production and employment.

STRUCTURAL UNEMPLOYMENT• It occurs when changing markets or new

technologies make the skills of certain workers obsolete.

• It is the longer term form of frictional unemployment.

• Caused by the mismatch of vacancies and skills of unemployed people.

• Mismatch of location of unemployed also cause structural unemployment.

• With the booming of information technology in production of goods and services and the changing structure of economies away from primary sector and towards secondary and tertiary sectors, traditional jobs are disappearing and jobs requiring new training are emerging. This leads to structural unemployment.

HIDDEN UNEMPLOYMENT:DISGUISED UNEMPLOYMENT• Arise when several people share a particular

work at a given time and when such work is spread over time.

• Example: in retail business in India, many fathers look after their respective businesses during early morning hours, late evenings and holidays and the sons run the business during the peak hours.

• Some occupations are seasonal.

• Example: farmers are occupied a lot during the Kharif

( june – oct) and Rabi ( december – march) seasons and have a little work during off times. Unless these farmers diversify and take p some other activities during the off seasons they would be seasonal unemployed.

UNDEREMPLOYMENT

• It is the situation where the work available is for lesser than the full employment hours or for periods lesser than the full working days in a given period.

• Part time workers in industries and services and full time workers in agriculture suffer from this problem.

• Such unemployment is rampant in developing countries and among females and other racially discriminated people.

MEASUREMENT OF UNEMPLOYEMENTCriteria for unemployment:

• Willingness

• Time

• Income

• Productivity

Norms to overcome certain problems:

• Priority rule

• Three reference periods

POVERTY

• Poverty is a multidimensional problem that goes beyond economics to include among other things, social, political and cultural issues.

• Therefore solutions to poverty cannot be based exclusively on economic policies, but require a comprehensive set of well- coordinated measures.

• Because economic growth is the single most important factor influencing poverty and macroeconomic stability is essential for high and sustainable rates of growth. Hence macroeconomic stability should be a key component of any poverty reduction strategy.

• Poverty is defined based on data of international standards that is US $1/day/per person and US $2/day/person.

• Lately , poverty definition is changed to US$4/day/person.

• The world’s poorest live in Africa and the progress in its reduction is also the slowest there.

• In India, the subject of defining poverty was first posed at the Indian labour conference in 1957.

• The working group of planning commission recommended Rs. 25 per person per month for urban and Rs. 18 per person per month for rural areas.

The united states government created the poverty line in 1960s.

• It is defined as the amount of income necessary to buy basic necessites.

• Measurement of poverty is done by HEAD COUNT RATIO. This measure ignores the size of the poverty gap as well as the relative inequality among the poor.

• To incorporate these factors new measure are:

• Poverty gap

• Squared poverty gap

• Sen index

• The poverty gap is defined as the mean shortfall from the poverty line expressed as a percent of the poverty line.

• The squared poverty gap incorporates a squared coefficient of variation of the relative inequality.

• Sen index uses the Gini coefficient among the poor population.

• HEAD COUNT ELASTICITY denotes the responsiveness of the head count poverty measure to the growth rate in the economy. It is expected to be negative and its estimate for india is -1.3 and for developing countries is -2.

TYPES OF POVERTY:

• Absolute Poverty• Relative Poverty

ABSOLUTE POVERTY:

• It is the lack of one or more basic needs over a long period of time that it endangers a person’s life or can cause harm.

• It is also known as extreme poverty and it refers to a poverty line . It is defined as the amount of income one needs to satisfy the most basic needs.

• Example: urban residence of capital cities will have greater education, energy and transportation cost other than populations else where.

RELATIVE POVERTY:

• It is defined as a measure of inequality in the lower half of income distribution

• It is used to measure wealth in relationships to other members of a distinct population.

• Example: organizations such as world bank may adjust the poverty level over time such adjustments rely on the world wide cost of accessing the goods and services necessary for survival.

THANK YO

U

SUBMITTED TO:

PROF. TEJAL SHAH

SUBMITTED BY:

JAAN PATEL

HIRAN PATEL

JYOTI PATEL

DIXITA PATEL