What is theories of employment and income – Types of Unemployment

Economics

1 Introduction

The economic history has shown many countries facing economic problems. Out of these problems, unemployment is the most vexing. Both classical economists and Keynes have explained the relationship between employment and income. The classical economists had great faith in the law of markets articulated by J.B. Say, the French economist. J. M. Keynes is one of the greatest and most influential economists of the mid 20th century.

Meaning of Full Employment

Full employment refers to a situation in which every able bodied person who is willing to work at the prevailing wage rate, is employed. In other words full employment means that persons who are willing to work and able to work must have employment or a job; Keynes defines full employment as the absence of involuntary unemployment. Lerner defines full employment as “that level of employment at which any further increase in spending would resultin an inflationary spiral of wages and prices”. Every economy in the world aims at attaining the level of full employment equilibrium where all its available resources are fully and efficiently employed to achieve maximum level of output. But in reality, the concept of full employment generally refers to full employment of labour force of a country.

Unemployment and its types:

Unemployment is problem faced when there are people, who are willing to work and able to work but cannot find suitable jobs.

While formulating policies to solve the problem of unemployment in India for instance, we need to distinguish between the nature of unemployment in rural areas and in urban areas in India. India’s rural economy has both unemployment and underemployment. The major feature of rural unemployment is the existence of unemployment in the form of disguised unemployment and seasonal unemployment. In India, frictional, structural and open unemployment exist in urban areas. Due to urbanization, a large number of people move from rural areas to urban areas. This migration from rural to urban areas increases the size of labour force in urban areas and adds to the already unemployed labour force.

Types of unemployment :

In developing countries like India, the nature of unemployment is different from that of developed countries. In developed countries, the unemployment is purely temporary or cyclical or frictional. But in the developing countries, it is largely structural unemployment which is due to slow rate of capital formation

The following are the types of unemployment

Types of unemployment

1 Cyclical Unemployment

2 Seasonal Unemployment

3 Frictional Unemployment

4 Educated Unemployment

5 Technical Unemployment

6 Structural Unemployment

7 Disguised Unemployment.

1. Cyclical Unemployment :

This unemployment exists during the downturn phase of trade cycle in the economy. In a business cycle during the period of recession and depression, income and output fall leading to widespread unemployment.

2. Seasonal Unemployment:

This type of unemployment occurs during certain seasons of the year. In agriculture and agro based industries like sugar,production activities are carried out only in some seasons. These industries offer employment only during that season in a year. Therefore people may remain unemployed during the off season. Seasonal unemployment happens from demand side also; for example ice cream industry, holiday resorts etc.

3. Frictional Unemployment:

(Temporary Unemployment) Frictional unemployment arises due to imbalance between supply of labour and demand for labour. This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc. The persons who lose jobs and in search of jobs are also included under frictional unemployment.

4 .Educated unemployment:

Sometimes educated people are underemployed or unemployed when qualification does not match the job. Faulty education system, lack of employable skills, mass student turnout and preference for white collar jobs are highly responsible for educated unemployment in India.

5. Technical Unemployment :

Modern technology being capital intensive requires less labourers and contributes to technological unemployment. Now a days, invention and innovations lead to the adoption of new techniques there by the existing workers are retrenched. Labour saving devices are responsible for technological unemployment.

6. Structural Unemployment :

Structural unemployment is due to drastic change in the structure of the society. Lack of demand for the product or shift in demand to other products cause this type of unemployment. For example rise in demand for mobile phones has adversely affected the demand for cameras, tape recorders etc. So this kind of unemployment results from massive and deep rooted changes in economic structure.

7. Disguised Unemployment :

Disguised unemployment occurs when more people are there than what is actually required. Even if some workers are withdrawn, production does not suffer. This type of unemployment is found in agriculture. A person is said to be disguisedly by unemployed if his contribution to output is less than what he can produce by working for normal hours per day. In this situation, marginal productivity of labour is zero or less or negative.

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