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    Unit 7

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    Boom Squad

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    Unit 7

    Uploaded by

    Boom Squad
    4 views18 pages

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    4 views18 pages

    Unit 7

    Uploaded by

    Boom Squad

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    © All Rights Reserved
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    of 18

    UNIT 7

    Unemployment
    LECTURE OUTLINE

    Unemployment definition

    The costs of unemployment

    The types of unemployment


    UNEMPLOYMENT

    Introduction
    High and prolonged unemployment is a sign of a malfunctioning economy. Being unemployed is,
    for most people, a highly distressing experience that causes damage in many ways that cannot be
    quantified.
    UNEMPLOYMENT

    Definition:
    According to ILO, unemployment (being unemployed) refers to those of a working age, who in a
    specified period, are without work and are both available for, and have taken specific steps to
    find work.
    UNEMPLOYMENT

    This definition is not comprehensive and has the following shortcomings since it
    implies that:
    • People who work part-time because they cannot find full time employment are fully
    employed; and
    • People functioning in the ‘shadow’ economy (e.g. informal traders) are considered to be
    unemployed.
    THE COSTS OF UNEMPLOYMENT

    Economic Costs
    • Lost output resulting in potential GDP (the real GDP the economy would produce if its
    labour and other resources were fully utilised).

    • Unemployment insurance payments – payment for workers who are not working. These
    funds could be utilised for other purposes.
    THE COSTS OF UNEMPLOYMENT

    Non-economic Costs
    • Increased crime and (labour) unrest; and
    • The unemployed can become dispondent and ‘rusty’.
    THE COSTS OF UNEMPLOYMENT

    Cyclical Unemployment:

    Any temporary drop in aggregate demand of a country results in cyclical unemployment.

    This leads to a recession – drop in real GDP – in the country.

    The drop in real GDP can be caused by a drop in consumption, government spending,
    investments or exports.
    TYPES OF UNEMPLOYMENT

    Structural and Technical Unemployment:


    Results when there is a drop in demand that is of a permanent nature.

    For example, if many qualified labourers cannot be employed by an industry because the
    industry has undergone structural changes (closure of gold mines and decline in gold production)

    If, on the other hand, people become unemployed because of technological changes such as
    automation, then this type of unemployment is referred to as technical unemployment.
    TYPES OF UNEMPLOYMENT

    Structural and Technical Unemployment:


    Often legislation puts people out of work (restrictive tobacco legislation
    reduces work opportunities along the whole value chain), minimum
    wage laws makes it particularly difficult for the entry level employee to
    enter the job market.

    Equal pay for equal work makes it difficult for designated groups to
    compete.
    TYPES OF UNEMPLOYMENT

    Seasonal Unemployment:

    This type of unemployment occurs when employees only work during a certain time(s) of the
    year and, therefore, during other months they are regarded as unemployed.
    TYPES OF UNEMPLOYMENT

    Disguised/Hidden Unemployment:

    Is said to exist if people who were previously fully employed, have had their hours (and,
    therefore, salaries) reduced because of poor business performance.
    TYPES OF UNEMPLOYMENT

    Frictional Unemployment:

    Even under the most favourable conditions, a certain percentage of people will always be
    unemployed.

    This ever-present unemployment is referred to as frictional unemployment (this includes people


    who are temporarily between jobs).
    POLICIES TO REDUCE UNEMPLOYMENT
    Supply side policies:
    1] On the supply side, rapid population growth can be a significant cause of unemployment.
    Steps taken to limit population growth can thus be regarded as part of the strategy to reduce
    unemployment.
    2] Any decline in the growth (or even the level) of the domestic population can be negated by a
    net increase in immigration. This is a particularly serious problem in South Africa, since many
    unemployed workers from other sub-Saharan countries and others seeking their fortunes in
    South Africa enter the country legally or illegally in pursuit of employment and income. Stricter
    immigration control can therefore also be regarded as an element of a policy strategy to reduce
    unemployment.
    POLICIES TO REDUCE UNEMPLOYMENT

    Supply side policies:


    3] Other relevant features of the supply of labour in South Africa are the shortage of skills and
    the oversupply of unskilled and semi-skilled labour. Even when the aggregate demand for goods
    and services (and therefore also for labour) is low, there are always vacancies for people with
    certain technical or professional skills or qualifications. On the other hand, people with no
    training or skills have difficulty finding employment, even when there is an excess demand for
    skilled workers. Any strategy to reduce unemployment in South Africa must therefore include
    policies to improve the quality of labour, for example through education and training
    POLICIES TO REDUCE UNEMPLOYMENT

    Demand side policies:


    1] Raising the aggregate demand for goods
    • Government can, of course, always raise the aggregate demand for goods and services by
    spending more. But increased government spending has to be financed either by raising taxes or
    borrowing.
    • Another possible option is to stimulate consumption and investment spending by lowering taxes or
    interest rates.
    • A more promising strategy would be to raise the demand for domestically produced goods and
    services by increasing the demand for exports
    POLICIES TO REDUCE UNEMPLOYMENT

    Demand side policies:


    2] Increasing the labour intensity of production
    The idea here is to promote types of economic activity which are relatively labour intensive:
    • It is often argued, for example, that government spending on housing will create more jobs
    than most other forms of government spending, both directly and through the linkages
    between the construction sector and the rest of the economy
    • The government can also embark on special employment programmes that are aimed at
    employing as many people as possible to build and maintain roads, build dams, clean the
    environment, develop new agricultural land and so on.
    POLICIES TO REDUCE UNEMPLOYMENT

    Demand side policies:


    2] Increasing the labour intensity of production
    The idea here is to promote types of economic activity which are relatively labour intensive:
    • Another possible avenue is to promote small businesses and the informal sector. It is often
    claimed that small businesses are much more labour intensive than larger enterprises and that
    the promotion of such businesses will thus raise employment (and reduce unemployment).
    • Yet another possibility is tax incentives or subsidies to stimulate employment. The idea is that
    employers will receive tax benefits or subsidies if they employ more people

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