Unemployment

Introduction

Unemployment or joblessness is the situation of actively looking for employment, but not being currently employed.

The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.

During periods of recession, an economy usually experiences a relatively high unemployment rate.

Unemployment Rate in Pakistan remained unchanged at 5.90 percent in 2017 from 5.90 percent in 2016.

Unemployment Rate in Pakistan averaged 5.49 percent from 1985 until 2017, reaching an all-time high of 7.80 percent in 2002 and a record low of 3.10 percent in 1987.

Labor Market and Employment

Employed: Currently working for pay

Unemployed: Out of who work, but actively looking for work

Labor Force: Employed + Unemployed

Out of Labor Force: Out of who work, but not looking for work

Population = Labor force + not in labor force

Labor force participation rate = Labor force/Population

The unemployment rate is expressed as a percentage and is calculated as the Unemployment rate = unemployed worker/total labor force x 100

For Example, if there are 7 million unemployed people. And there are 150 million people in the civilian labor force, we have the following rate of Unemployment: 7 Millions/150 Millions x 100 = 4.7% Unemployment

Full Employment

Full employment is a situation in which all available labor resources are being used in the most economically efficient way.

Goal of Full Employment – Zero Unemployment is always impossible in a market economy. But we strive for Full Employment where no cyclical unemployment exists in the economy.

An unemployment rate of about 4-6 percent is normal during full employment.

Types of Unemployment

Frictional Unemployment

Frictional unemployment is the time period between jobs when a worker is searching for or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual.

Frictional unemployment exists because both jobs and workers are heterogeneous, and a mismatch can result between the characteristics of supply and demand.

Such a mismatch can be related to skills, payment, work-time, location, seasonal industries, attitude, taste, and a multitude of other factors. New entrants (such as graduating students) and re-entrants (such as former homemakers) can also suffer a spell of frictional unemployment. 3)

Structural Unemployment

Structural unemployment occurs when the labor market is unable to provide jobs for everyone who wants one because there is a mismatch between the skills of the unemployed workers and the skills needed for the available jobs.
Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer.

As with frictional unemployment, the simple demand-side stimulus will not work to easily abolish this type of unemployment.

Cyclical Unemployment

Cyclical unemployment comes around due to the business cycle itself. Cyclical unemployment rises during recessionary periods and declines during periods of economic growth.

For example, the number of weekly jobless claims in the United States has slowed in the month of June, as oil prices begin to rise and the economy starts to stabilize, adding jobs to the market.

Seasonal unemployment

Seasonal unemployment occurs when an occupation is not in demand at certain seasons.

Natural Rate of Unemployment

Unemployment that occurs as a normal functioning of the economy = Frictional Unemployment + Structural Unemployment
Usually, 4 to 5 percent of the labor force is searching for jobs, waiting between jobs, or getting trained for new jobs.

Unemployment rate above the natural rate is considered to be cyclical, e.g., 7.5% – 5% = 2.5%

Long-term unemployment

Long-term unemployment is defined in European Union statistics, as unemployment lasting for longer than one year. The United States Bureau of Labor Statistics (BLS), which reports the current long-term unemployment rate at 1.9 percent, defines this as unemployment lasting 27 weeks or longer.

Long-term unemployment is a component of structural unemployment, which results in long-term unemployment existing in every social group, industry, occupation, and all levels of education. 6)

Hidden unemployment

Hidden, or covered, unemployment is the unemployment of potential workers that are not reflected in official unemployment statistics, due to the way the statistics are collected.

In many countries, only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government “retraining” programs) are not officially counted among the unemployed, even though they are not employed.

Hidden unemployment often is a result of deliberate manipulations by the state to make statistics about the country look better (especially for international propaganda purposes), which – to give an example – was a common practice in USSR and the Soviet-occupied satellite states under the Warsaw Pact. Especially in those countries, it is often referred to as agrarian unemployment, since it often occurred in agricultural sectors, mostly in rural areas.

Causes of unemployment

Growth Of Population – One of the major and the biggest problems of unemployment in Pakistan is the growth of population. According to the survey, the population of Pakistan is increasing with the rate of 2.2%.

The reason behind the massive population is illiteracy, early marriages and also lack of awareness. This problem is very common, especially in rural areas where there are more uneducated people. Government or any other sector cannot provide them jobs.

Poor Education System – Everyone knows that the education system in Pakistan is very poor and this is the major reason behind the unemployment problem in Pakistan. We can see that government has failed to take necessary steps to provide the best education system, which causes an imbalance in the education system. Many brilliant students have left the study due to too many fees. Moreover, many institutions are just selling degrees to the people, which results in the lack of experience and skills in them.

Higher Retirement Age – The retirement age in Pakistan is 60 years, which is very high. Government is directly responsible for the unemployment problem in Pakistan. Due to this factor, people with less age are in wait of jobs and their higher education is making them exasperated because of no job.

Terror Activities In Pakistan – Another reason for unemployment in Pakistan is terror activities like terrorism. It has made our country, especially the city Karachi very threatening. Karachi is the main hub of the trade and business in Pakistan, but foreigners are scared to invest there. The main question is if the investors will stop making the investments in Pakistan, how it is possible to create job opportunities?

Scientific Development – The scientific development in Pakistan is very low and it is the greatest cause of unemployment. The slow progress of industrial and economic development are resulting in less factories and industries. If there will be less or no development, the laborers, workers and qualified people will be unable to get employment.

Energy Crisis Pakistan has not been able to provide enough electricity to the industry.

Joint Family System

Increasing turnout of students from Universities

Slow Developing of Industries

Insufficient Rate of Economic Progress

Poor Governance Good governance is an essential precondition for employment as it establishes the enabling regulatory and legal framework essential for the sound functioning of land, labor, capital and other factors of the market.

Political Instability Political stability is fundamental to the creation of an enabling environment for growth and development.

Corruption Corruption is one of the most dangerous factors that eroded Pakistan’s economic and governance system since its inception.

Lack Of Credit Facilities It is so difficult to manage the personal business and self-employment due to the absence of easy credit facilities. Accordingly, the shortage of credit facilities is also the main cause of unemployment.

Deficiency Of Capital There is a shortage of capital that leads to low level of saving and investment in Pakistan. It results in a low rate of capital formation and caused unemployment.

Technological disruption New technologies are emerging and we are unable to cope with the rapid pace of development.

Skills mismatch Our labor force is not able to develop the necessary skills for the present day job market.

‘Lack of culture of self sufficiency Our social culture does not teach the children to be self sufficient and earn at a very early age. Hence even the educated youth does not know where to start when they complete their education.

Impact of unemployment

• Individual: Unemployed individuals are unable to earn money to meet financial needs. Failure to pay installments or to pay rent may lead to homelessness through eviction. Unemployment increases chances of malnutrition, illness, mental stress, and loss of self- esteem, leading to depression.

• Society: An economy with high unemployment is not using all of the resources, i.e. labor, available to it. Since it is operating below its production capability, it could have higher output if more people are usefully employed. However, there is a difference 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.

Solutions for Unemployment

A Change in the pattern of investment

Encouragement to small enterprises as against big enterprises

The problem of Choice of technique

Encouragement of New Growth Centers in Small Towns and Rural Areas

Subsidies on the Basis of Employment

Reorientation of Educational Policy