Unemployment is being jobless or the total number of people who are not working. But when we study unemployment as a macroeconomic term, unemployment is the number of people in the labour force who wish to work but cannot find employment. The workforce is considered the entire population able to work and is willing to do so. Those who are retired, disabled, and capable of working but are not seeking work—perhaps because they are caring for children or pursuing further education—are excluded.
Did you know? Among all regions, East Asia has the largest number of unemployed workers.
Meaning of Unemployment
The official definition of unemployment is as follows:
Unemployment happens when a person who is part of the labour force and actively searching for employment is qualified and capable of doing the work but cannot find a job.
The unemployment level is frequently used to measure the state of the economy. As seen, most underdeveloped nations have a huge rate of unemployment. High, persistent unemployment can indicate substantial economic distress and possibly trigger social and political unrest.
On the other hand, a low unemployment rate indicates that the economy is more likely to be operating at or close to its maximum potential, maximising output, spurring wage growth, and gradually boosting living standards.
The unemployment rate measure is derived by dividing the number of unemployed people by the number of people in the labour force.
Unemployment rate = (Unemployed Workers / Total labour force) × 100
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Causes of Unemployment
The main cause of unemployment are:
1. Some countries face unemployment issues only because of their large numbers and their constantly growing populations, as they cannot create jobs to match the requirement.
2. Low level of education, vocational and technical skills, and knowledge. This also leads to a large informal sector and unskilled labour force.
3. Limited job potential in the secondary sector due to inadequate infrastructure growth and insufficient manufacturing investments.
4. Due to low agriculture productivity, there is a lack of resources, so it isn't easy to transition to the secondary and tertiary sectors.
5. Unfavorable government policies may not support infrastructure development and small-scale and cottage industries.
6. Jobs have become increasingly specialised with more technical requirements.
Due to unemployment, developed and emerging countries lose their overall financial and economic influence. In recent times the Coronavirus has affected the unemployment rates of countries directly. For policymakers, accurately anticipating the unemployment rate is a vital task that is crucial to a nation's financial and financial development strategy.
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Types of Unemployment
Depending on the varied condition, there are 5 types of unemployment, which are as follows:-
Frictional unemployment is when workers change jobs and are unemployed while waiting for a new job. A worker may already have a job lined up, but they may not be able to start for a few months. There's that tiny gap of unemployment between being employed and being unemployed.
If the economy is not doing very well, that means a lesser number of workers are needed. If it starts doing better again, more workers will be required, and the unemployed will become employed again. Structural unemployment is just based on shifts in the economy - negative or positive economic shifts.
Cyclical unemployment is when natural business cycles bring about a loss of jobs. If the economy is booming, and everyone can produce more goods and buy more goods, then it's called expansion. When the economy dips down, and there is a recession and not much work, people don't buy as much, and production is lowered.
Seasonal unemployment is when seasonal cycles reduce the need for specific jobs. Some jobs come up just around certain times of the year. Eg. there are more ice cream vendors in the summer. There are different needs generated in different seasons. Around the festive season, more people find jobs as people buy more.
Technology has eliminated specific jobs or reduced the need for them. From telephone operators to self-checkout at the grocery store, more and more things have become computerised. With the advancement of technology, we are constantly moving from labour-intensive jobs to machine-intensive jobs reducing the need for labour.
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Suggestions to Solve Unemployment Issues
Now that we have looked into the causes of unemployment, let’s look into some of the suggestions that could help in reducing the unemployment levels.
Change in industrial technique:
The production method should suit the nation's demands and resources. It is imperative to promote labour-intensive technology over capital-intensive technology.
Policies of the government should be aimed at economic growth even at the ground level. The government should promote small-scale and cottage industries. It should also provide the impetus for the growth of the agriculture sector.
Change in the education system:
The current educational model needs to be radically altered. Admission to colleges and universities should be given to those interested in higher education. Vocational education needs to be emphasised. A competent engineer should be able to launch an independent business. Education should be more project and skill-based.
More Investment and More Production:
More investment in domestic production can generate more employment as it increases production.
High Rate of Capital Formation:
One key factor affecting economic growth is the pace of capital formation. Therefore, if the twin issues of widespread poverty and unemployment are to be resolved, every effort should be made to increase the rate of capital production in the nation.
Decentralisation of industrial activity:
To lower unemployment, industrial activity must be decentralised. The number of employment prospects in underdeveloped areas will decrease if industrial operations are concentrated in one location. Therefore, the government should implement measures supporting the decentralisation of economic activity.
The unemployment loop can be broken in a variety of ways. One strategy is to persuade the populace to spend more money to maintain the level of consumer demand. Another is for the government to subsidise businesses in danger of failing.
According to several economic theories, like Keynesianism, the government of a nation should prioritise job creation. Unemployment will decrease if the government imposes stringent restrictions on the amount of money circulating in a nation's economy.
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Economists refer to the situation of being jobless within an economy as unemployment. Lack of resource utilisation causes unemployment, which depletes the economy's production. We can conclude that unemployment is inversely related to economic productivity. Also, unemployment contributes to a nation's decline in economic standing and fosters criminal activity.
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