Unemployment, Types and Solution

QUESTION:

1.      What is unemployment?

2.     Mention and explain the types of unemployment and prefer the solution for each.

3.     What type of unemployment are we witnessing in Nigeria?

1.         What is unemployment?

Unemployment is a phenomenon that occurs when a person who is actively searching for employment is unable to find work. It is a situation where those who are willing and able to work cannot get work to do. Unemployment is often used as a measure of the health of the economy. The most frequently measure of unemployment is the unemployment rate, which is the number of unemployed people divided by the number of people in the labor force.

2.         Mention and explain the types of unemployment and prefer the solution for each.

i.          Structural Unemployment

ii.         Frictional Unemployment

iii.        Seasonal Unemployment.

iv.        Cyclical Unemployment.

v.         Geographical Unemployment.

vi.        Real wage unemployment. 

i.          Structural Unemployment 

Structural unemployment occurs when there is a change in the structure of an industry or the economic activities of the country. As an economy develops over time the type of industries may well change. This may be because people's tastes have changed or it may be because technology has moved on and the product or service is no longer in demand. The main causes are as follows:

Solutions: Government provides incentives to firms to train these employees to make them more marketable for other jobs & also incentives for those unemployed to join the training scheme

ii.        Frictional Unemployment

This type of unemployment is caused by industrial friction, such as, immobility of labor, ignorance of job opportunities, shortage of raw materials and breakdown of machinery, etc. Jobs may exist, yet the workers may be unable to fill them either because they do not possess the necessary skill, or because they are not aware of the existence of such jobs. They may remain unemployed on account of the shortage of raw materials, or mechanical defects in the working of plants. On average it will take an individual a reasonable period of time for him or her to search for the right job. This creates unemployment while they look and this type of unemployment is normal and temporary in nature.

Solution: Federal government should provide something like a government-funded agency (something like Jobstreet in Malaysia) that helps people to look for suitable employment & firms to fill in vacancies. Also the government can cut unemployment benefits, to increase the opportunity costs of staying idle. There should be free flow of information to reach everybody in need at all time.

iii.       Seasonal Unemployment.

This is due to seasonal variations in the activities of particular industries caused by climatic changes, changes in fashions or by the inherent nature of such industries. The ice factories are closed down in winter throwing the workers out of their jobs because there is no demand for ice during winter. Such seasonal industries are bound to give rise to seasonal unemployment.

Solution: Government should make proper development plans for those who are unemployed in a country. When there are enough industries in a country, demand for labour will increase

iv.       Cyclical Unemployment.

This type of unemployment (also known as Keynesian unemployment or the demand deficient unemployment) is due to the operation of the business cycle. This arises at a time when the aggregate effective demand of the community becomes deficient in relation to the productive capacity of the country. In other words, when the aggregate demand falls below the full employment level, it is not sufficient to purchase the full employment level of output. Less production needs to be carried out which ultimately leads to retrenchment of workers. Cyclical or Keynesian unemployment is characterized by an economy wide shortage of jobs and last as long as the cyclical depression lasts.

Solution: Government has to increase public spending & reduce taxes. Increase in General income will jump-start the economy since it’s part of the component of Aggregate Demand. Hopefully through the multiplier effect, will lead to a secondary increase in Aggregate Demand. Cut in direct tax will induce more people into work since it increase the level of disposable income

v.         Geographical unemployment. 

Unemployment caused by difficulty to move from an area with low demand to areas with high demand for labour. This is often caused by social factors like family ties, cost of living etc

Solutions: Government can consider giving incentives to firms e.g. tax breaks, investment tax credit etc to set up businesses in areas with high unemployment. Also, they can actually reduce barriers to free movement. Notably, EU has reduced the border controls thereby enabling workers from e.g. Hungary to come in easily & work in UK. However, there could be other barriers like language
vi.       Real wage unemployment. 

Unemployment that is caused due to high wages in the economy. It could be caused by any of the combinations such as strong trade unions, wage rigidity & minimum wage. Strong trade unions can cripple the whole economy. They often ask for wages that are absurd even in period of difficulty like now. Secondly, there are some wages that could be difficult to be adjusted downwards, e.g. workers with long term contract. Lastly, high NMW (national minimum wage) can lead to unemployment as firms will demand for lesser workers if per hour pay is high

Solutions: Government can follow the stance adopted by Margaret Thatcher in paralysing the strong labour union. However it is very politically unpopular.

3.         What type of unemployment are we witnessing in Nigeria?

1.                      Structural unemployment

2.                     Seasonal unemployment

The population of every economy is divided into two categories, the economically activeand the economically inactive. The economically active population (labor force) or working population refers to the population that is willing and able to work, including those activelyengaged in the production of goods and services (employed) and those who are unemployed.Whereas, unemployed refers to people who are willing and a capable of work but are unable tofind suitable paid employment. The next category, the economically inactive population refers to people who are neither working nor looking for jobs. Examples include housewives, full imestudents, invalids, those below the legal age for work, old and retired persons. Theunemployment rate is expressed as a percentage of the total number of persons available for employment at any time. Unemployment is a problem that each society faces, and each societymust find a way to beat it. Unemployment is one of the developmental problems that face everydeveloping economy in the 21St century. International statistics portray that industrial and serviceworkers living in developing regions account for about two-thirds of the unemployed population. Nigeria, since the attainment of political independence in 1960 has undergone variousfundamental structural changes. These domestic structural shifts have however not resulted inany significant and sustainable economic growth and development. Available data show that the Nigerian economy grew relatively in the greater parts of the 1970s, with respect to the oil boomof the 1970s; the outrageous profits from the oil boom encouraged wasteful expenditures in the public sector dislocation of the employment factor and also distorted the revenue bases for policy planning. This among many other crises resulted in the introduction of the structural adjustment programme (SAP) in 1986 and the current economic reforms. The core objective of the economicstructural reform is a total restructuring of the Nigerian economy in the face of a massive population explosion. However, these economic and financial structural reforms put in placehave not yielded significant results.According toBriggs (1973) unemployment is the difference between the amounts of labor employed at currentwage and working conditions, and the amount of labor not hired at these levels, however, Gbosi(1997) defined unemployment as a situation in which people who are willing to work at the prevailing wage rate are unable to find jobs. “The unemployed is a member of an economicallyactive population, who are without work but available for and seeking for work, including peoplewho have lost their jobs and those who have voluntarily left work (World Bank, 1998). Thenatural rate of unemployment is the average rate of unemployment around which the economyfluctuates. In a recession, the actual unemployment rate rises above the natural rate, in a boom,the actual unemployment rate falls below the natural rate

REFERENCES

https://www.investopedia.com/terms/u/unemployment.asp

Oche Audu Oche  UNEMPLOYMENT IN NIGERIA (2009) https://www.scribd.com/doc/15083266/UNEMPLOYMENT-IN-NIGERIA

Lawrence Chia wei Types of unemployment and solution http://econsguide.blogspot.com.ng/2008/12/relevant-policies-to-combat-danger-of_26.html