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The Determinants Of Unemployment In Pakistan Economics Essay

Paper Type: Free Essay Subject: Economics
Wordcount: 5427 words Published: 1st Jan 2015

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Part of: Employment


Unemployment is a common word nowadays. we may have noticed that in spite of education, there are many people that are without jobs. widespread and persistent unemployment is one of the serious macroeconomic problems, both developing and developed countries in the world. Unemployment brings a large number of socio-economic problems in many divers’ ways. The negative crash of unemployment is divers and delicate. In addition if the output of income is low its leads to the rising income inequality, ill health and mortality, loss of human capital and skills, migration, loss of human capital relation, loss of motivation for future works and social life. for that reason it is very important to be aware of the nature and effects of unemployment. We should also have to design suitable policies and programmers to contest it. In this component that will be introduced to the perception classification, and measurement of unemployment. From this a person will be able to analyze the tendency and consequence of unemployment, and evaluate effectiveness of different programs and policies that are initiate by state and central government to reduce the unemployment in economy.

Definition of unemployment

We might have listen to about unemployment from our friend and relative might not have got the job even after being effectively educated.

To most, the word unemployed means remain without work. Unemployment basically is define as ” The condition of having no job or being out of work or proportion of people which are able to work actively searching jobs but they are unable to find it.”

IMF report (1998) define as:-

‘unemployment is measured annually as percentage of labor force that can’t find a job’. Unemployment also refers to the number or proportion of people in the working population that are unemployed.

Unemployment is basically a persistent challenge that is facing Pakistan since its inception and it   is one of the biggest problems of Pakistan.. An unemployed person is one who is an active member of the labor force and he is able to and looks for work, but is unable to find work during a precise reference period that might be a week or a month or a year.

According to current situation in Pakistan more than 30 lack people are unemployed and unemployment ratio is more than 12%.

The unemployment issue of Pakistan is increasing more in rural areas where almost 70% of the Population is living. There livelihoods depend on rural economy. They have lack of basic necessities such as primary health care, education, job opportunities, social services and some other issues due to unemployment increasing day by day. . The biggest reason of unemployment in Pakistan is concerned with the backwardness of agriculture sector. Agriculture sector is the largest sector of Pakistan economy it contributes 20.9% to GDP and 44% people directly or indirectly get jobs opportunities from this sector. Unemployment in agriculture sector arises from two sides.

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First reasons are due to the adoption of latest machinery and capital intensive technology. Due to this reasons, demand for labor has been decreased. Second is the backwardness of agriculture sector. There is less availability of quality seeds, pesticides, and fertilizers, absence of land reforms and lack of agriculture education. Due to all these factors agriculture sector is not expanding or flourishing and due to these problems there is general and disguised unemployment in the economy.

Industrial sector is the second largest sector of our economy and it contributes 19% to national income of economy. A large number of labor employed by this sectors. But due to backwardness in industrial sectors a small number of people are employing. Due to electricity breakdown it already established industry is deteriorating, resulting is the prevailing unemployment ratio. In Pakistan education system is very defective. There is no proper educational planning. There is lack of technical and vocational institutions. Public attitude towards education is no serious, they want to get their degrees in general and arts subjects. Nobody is ready to set up his own business without technical education. In Pakistan majority of the businessmen are less educated and unskilled. They don’t have proper knowledge and they don’t know how to run their businesses properly and effectively. So they become bankrupt in a country. This factor and reasons generates unemployment on a massive level.

Increase in unemployment can be stated the change in demographic structure, women participation in labor force, immigration from rural areas to town, economic crises in a society and technological unemployment. On the other hand unemployment is not only an economic problem but it is also a social problem and that may cause crimes and deform social fabric. The struggle against unemployment is not limited the unemployment rate in the economy but also to take a consideration into the relationship with macro economic variables such as we can take the example of economic growth, exchange rate and inflation natural unemployment In the economy can be summarized as change in demographic structure, oil crises, increase in Capitan intensive production, labor unions, loss of power, increase in productivity, productive growth, decrease in wages rise, firm structure and structure of policies that regulating in labor market are imbalances in rural as well as in urban areas. Inflation is another factor that may affect unemployment. In the past 20year the rapid and wide spread diffusion of computer information technology at a work place is one of the most important and notable trend. This development has prompted both a great concern that its effects the employment and enhance the job skill requirement that increase the economic inequality and great deal of excitement that information technology serve as engine of economic growth.

Types of unemployment

Comprise studied the meaning of unemployment, now let us talk about the different types of unemployment. Generally, unemployment can be separated into two types: voluntary, and involuntary, unemployment.

Voluntary and involuntary unemployment

Voluntary unemployment occur due to motive that are explicit to an individual, whereas involuntary unemployment is foundation by a large number of socio-economic factors for example level and composition of aggregate demand, structure of the market, government intervention, and so on.

Therefore, the Unemployment has different kinds depending on the nature, origin, and period of unemployment. Let us now talk about various types of unemployment. Unemployment is broadly classified in following group.

There are different types of unemployment we can define them in five categories such as frictional unemployment, structural unemployment, cyclical unemployment, classical unemployment and demand deficit etc.

Frictional unemployment

Frictional unemployment includes those people that are unable to do work plus the stock of people moving between jobs. it occurs because of a discrepancy in the timing due to this people leave one job and starts another job. Frictional unemployment pass on to a conversion period of looking for a new job, for different reason, such as looking for a better job, being passionate from a current job, or having voluntarily quit a current job. The period of time between the current to a new job is referred to known as frictional unemployment.

Seasonal unemployment

The other type of unemployment is Seasonal unemployment that is a type of frictional unemployment, it occurs in a definite activities or profession which is characterized by seasonal work. An example of seasonal unemployment is the joblessness through non-cultivation in rural areas.

Structural unemployment

Structural unemployment occurs when there is the long-term changes happened in the patterns of production and demand within an economy This kind of unemployment takes place when there is several transform in consumer demand and technology in the economy. For example, when computers were initiate many workers were displacing because of a divergence between the accessible skills of the workers and the obligation of the job. Though jobs were accessible, there was a demand for a new category of skill and qualification. So, persons with old skills did not get employment in the changed economic domination and stay unemployed. This is known a structural unemployment.

Cyclical unemployment

In cyclical unemployment includes those workers who lay off when the overall economy suffers a downturn. When there is an economy is broad decline in aggregate demand for goods and services, employment declines and unemployment in the same way increases. as a result it is sometime referred to as ‘demand lacking unemployment’. For example during the current global slowdown, in late 2008, many workers in the region of the globe vanished their jobs.

Natural rate of unemployment

Natural rate of unemployment is the sum total of frictional and structural unemployment that is referred as the natural rate of unemployment of economy .Open unemployment happen when a person is voluntarily or Involuntarily and keeps himself out of deliberation for definite jobs. For example In1980s there was a rapid decline in the steel and coal industries in the UK. That’s caused a large number increased in structural unemployment in those areas such as South Wales sun-set industries etc.

All the developing countries, including India endure from structural unemployment, which survive both in open and disguised structure. The problem in developing countries can better be review as underemployment a fractional lack of work, low employment income, and under utilization of skills, underutilization of natural resources or low productivity, slightly issue of unemployment as argue above. Thus, underemployment explain the condition of those person who are able to do work at part time because full time jobs is unavailable or employed one full time foundation but the services they turn into may actually be much less than full time as known as disguised underemployment and those who are employed in profession have need of lower levels of skills than they are qualified for , that a name is hidden underemployment. A related concept is that of working poor those who are actually work for long hours but they earn only at low income beneath the poverty line. In other words, working poor is definite as situation when the individuals or households, in spite of being employed, stay put in comparative poverty due to low levels of wages and earnings.

It is essential to note that the kinds and nature of unemployment fluctuate extensively in developing and developed countries. Unemployment in developed countries occurs due to the lack of required effective demand or economic slowdown, such as recession, or depression. In developing countries, unemployment happens largely because of a lower demand for labor or inadequate employment opportunity in the economy. Such a situation occurs due to the survival nature of agriculture, a low industrial base and the small size of the tertiary sector of economy. Let us now discuss the different concepts of unemployment that are related to developing countries, including India. A low income below the poverty line. In other words, working poor is defined as a Situation when individuals or households, in spite of being employed, remain in relative poverty due to low levels of wages and earnings.

Classical unemployment

Classical unemployment is the view of unemployment that put forward by classical economists. It occurs when the real wage is too high. Real variables take account of the price level, nominal variables do not do so. According to classical framework, wages and prices are perfectly flexible so as to keep the economy at full-employment.

Demand-Deficient Unemployment

Demand-Deficient Unemployment refers to unemployment within the framework of Keynesian, where the aggregate demand level is below that necessary to achieve full-employment.

In Pakistan unemployment is of structural and cyclical nature. Unemployment is a central problem because when unemployment is high, resources are wasted and people’s incomes are depressed; during such periods, economic distress also spills over to affect people’s emotions and family lives. There are a number of causes of unemployment occures in Pakistan. There are deferent causes of unemployment. Some of the causes of unemployment that are usually aware, the main problem is that there are over population and lack of work. Some of the important causes of unemployment are: the high rate of population growth and the subsequent increase in labor force; low velocity of economic growth, need of sufficient employment opportunities in non-agricultural activities and creation of seasonal employment, or need of full time employment in agriculture; low labor incorporation capacities in industrialized and tertiary activities; shifting from labor-intensive to capital, Skill-intensive production technique and expansion in education system, and so on.

Let us now we will briefly elaborate these causes. Low and unpredictable levels of economic growth do not generate sufficient employment opportunities, as desired. in addition, rates the sectoral composition of growth is also an most important determinant of unemployment. extreme dependence on agriculture sector and slow growth of non-farm activities is the cause of limit employment generation. utilization of capital-intensive technique and production practice not only dislocate presently employed persons, but also measured down the generation of new employment opportunities. There is the need of a clear and glowing developed human resource policy and manpower policy, may show the way to a disparity between the need and accessibility of appropriate skills and training, which outcome is unemployment, mainly of youth and educated ,speedy growth in population, deficiency of employability due to poor health and nourishment that also show the way to unemployment. deficiency of investment and infrastructure development are factors that do not produce sufficient levels of employment in the economy, and as a result unemployment rises in economy.

Insufficient accessibility of unemployment insurance and public employment programmers also source a rise in unemployment. Large scale smuggling which has flooded the market with cheaper goods poses a serious threat to the development of local industry. Tight bureaucratic control on the economy, inadequate credit facilities and complex tax system are also some important factors that are creating hurdles in the way of private sector investment in industrial projects.

Now we will discuss the problem of under employment and working poor.

Underemployment problem might acquire different forms, such as partial lack of work, low employment income, and underutilization of skills or low productivity. In other words, the underemployed are those persons who look for and are accessible for alternative work, moreover because the quantum of current work is not sufficient, or not remunerative sufficient In this section, we will talk about two important component of underemployment, that is. first, the incidence of working poor by type of employment and extensive sector, and second, insufficient accessibility of work.

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The working poor might be depict like individuals and families who preserve regular Employment but residued in relative poverty because of low levels of wage and earning Approximately one fourth of the total workforce functions at income level, which is below the predetermine levels of MPCE that are used to define the poverty line in India. It is significant to note that the frequency of working poor is highest among the workers who work informal The occurrence of working poor is too high for the self employed workers. The extent of working poor is more in urban areas as contrast to rural areas for all category of employment. There are momentous variations in the proportion of working poor in broad sectors .A larger proportion of primary sector that is agriculture workers are poor contrast to workers in secondary and tertiary sectors. yet again, in urban areas the occurrence of working poor is larger than that of rural areas in all three wide sectors.

Youth unemployment

Youth unemployment is also a very serious problem with much socio-economic implication. Unemployment surrounded by the youth is not only a social cost in stipulations of potential loss of skill and training, but also it is protracted, it will generate unrest Among the youth and capacity that go ahead to family argument, alcohol, drug, suicide and abuse, For expediency, in this unit, we have distinct ‘youth’ as persons old 15 to29 years. In stipulations of all the four measures of unemployment, the unemployment rates are maximum for persons old 20 to 24 years. The unemployment rates are higher for urban persons at unreliable age groups. The unemployment rates have amplified for persons of different age groups during 1993-9412004-05. Thus, the occurrence of youth unemployment has an increasing tendency and it is more delicate in urban areas. Special employment policies and programmers need to be prepare

to address the problem of youth unemployment.

The level of education is an significant correlate of unemployment. There is a universal belief that levels of education and unemployment rates are inversely related with each other. The level of education is an imperative associate to unemployment. There is a common certainty that levels of education and unemployment rates are inversely related with each other , the illiteracy rate in 1993-94 rural male and female was 1.8 and 2.2 respectively, in 1999-00 was 3.0 and 2.7 and in 2004-05 was 2.7 and 2.5 respectively. And in urban areas illetracy rate in 1993-94 of 2.2 of male as well as female, in 199-00 was 3.1 of male and 2.0 of female and fanly in 2004-05 2.8 of males and 2.5 women were illiterate. But, Unemployment rates are higher for the educated workers. This is true for both male and female workers, with in rural and urban areas. Illiterate person or workers through low level of education that do not has sufficient employment options. Consequently, they cannot meet the expense of to wait for a better employment opportunity. On the divergent educated and trained workers in the favor to keep on unemployed till they obtain appropriate employment of their choice. Therefore, at higher levels of education, the rates of unemployment are also higher. In addition the potential of changing jobs are also advanced for educated workers. The conversion period between the present job and new job is also a magic charm of unemployment, that might be referred to as frictional unemployment. Consequently now the question is that what is the main reason of the rise in educated unemployment? Earliest, in excess of the years, there has been considerable expansion of the education sector. as a result when educated workers entered into the market labor force has increased, but the economy has unsuccessful to create equivalent employment opportunities on behalf of these workers.

In other words, there is a inequality between the supply of and demand for educated Workers in the economy. It may also be discuss that the existing education system is has unsuccessful to provide the right kind of skills, opportunities and technical propensity. The skills and capability of these educated workers that are do not match the necessities of various of kinds of work and activities That are available. For example, in India in educational system, most of the workers having ten years of schooling and they do not attain any vocational training, and therefore they are not appropriate for any skilled jobs.

Unemployment and poverty are two imperative problems of all developing countries and they are interconnected with each other .Unemployment and poverty coexist at a time, but it is not always positively connected with each other.. But unemployment and remain in underemployment are most important causes of poverty and, as a result, the provisioning of profitable employment will be fundamental for poverty reduction in economy. in view of the fact that in the Indian statistical system, poverty is considered on the foundation of Monthly Per Capita Expenditure (MPCE), accede to us now investigate the behavior of unemployment rates on varying levels of MPCE in rural and urban areas of India. Many African countries also facing the problem of unemployment in african countries the Growth is essential not only for growing the levels of income but also for put down the groundwork for sustainable poverty reduction policies, improving human welfare and enhancing the overall development in economy. Growth facilitates countries to enhance the accessibility and allotment of basic life supporting goods and services for example food, shelter, health, shield and protection. It also permits countries to produce more jobs and better education slandered, in that way growing the assortment of economic and social choices obtainable to individuals. For the considerate how to attain growth and how we can maintain it at high levels is the solution to understanding that how we can increase the living standard of individuals and recover poverty on the continent so that people can live happily.

From the time when the occurrence of the global crises in Africa, the GDP growth has trended downwards, even though showing some flexibility as evaluate to preceding episodes of economic recession. with the intention of growth rate was 4.9 per cent in 2008 and 1.6 per cent in 2009 outstanding mainly the demand of commodity was low and prices and a spiky fall in domestic demand specially private investment, exterior capital inflows and tourism receipts. Projected growth improvement in Africa is about 4.3 per cent in 2010 will another time rely mostly on the health of the global economy and its craving for Africa’s commodity that are exported, which will increase export prices and revenue generation.

The economic crash of the global economic recession on African countries is because of that its depended more on their economic structures. The Africans Countries that are seriously dependent on mineral resources and undiversified export intention that were affected the most because of lower prices of commodity and their demand. The disaster also has an impact on social conditions of the countries, as a result there is declining in living standards of the people, particularly in that place where social protection is not well-developed. The prolonged decelerate in the world of economy that reason to transmittal, job creation, tourism and ODA start decline and as a result the unemployment to increase.

In economic theory the linear positive relationship between economic growth and employment can be supposed. There is not a common thinking related to this issue between the economist. Some suggested that there is a positive relationship between employment and economic growth and this economist are not agree with the jobless growth. But in few recent years it is observed that unemployment problem cant be solved by economic growth alone.in economic theory the relationship between unemployment and the economic growth is explained by using Okun’s Law.

Okun’s Law

Okun’s Law described an enduring empirical observation that firstly made by Arthur Okun in 1962 he observed that in the postwar periods the unemployment rate was on the average, each extra percentage is above than four percent and that can be associated with about a three percent in real GNP. Because Okun’s empirical finding is well heldup during the ensuing decade, the ratio was 3:1 in trade off between the real GNP growth and unemployment rate that becomes to known as Okun’s Law.

Now we will explain the relationship of unemployment and inflation.In economic journalism there are many different accounts of labor market theory. All labor market effect have been clarify by theoretical point of view with the help of three major forces that are the market forces of demand and supply ,sociological factors such as cultures, customs, class, and family background and institutional forces in the form of government union etc.With this framework there are different schools of thought exist in which includes the classical, the neoclassical, and the institutional schools that are come into view in labor economics journalism. That is foundation on relative importance and the working of these forces to express about specific labor market effect.

The neoclassical school of thought paying attention on the primarily operation of market forces in influencing the wages and distribution of labor, and measured other institutional and social factors as mention. On the divergent, the institutional school highlights the role of institutional forces, for instance internal labor markets and unions, and sociological factors, such as class and intolerance segmentation, in addition to stratification Unemployment in the labor market. The institutional school consequently, situates emphasis on the exclusive features of the labor market, and explains that how these forces fade away the role of market forces hence, known about the different theories and school of thoughts in labor economics journalism how would one explain the problem of unemployment?

Unconventional theoretical explanations on the problem of unemployment have been locate ahead by different schools of thought. Of economic .Keynesian economic thoughts center of attention on lack of effective demand for goods and services which foundation is unemployment in an economy, and discuss those government policies, mutually monetary and fiscal, might be used to increase aggregate demand, therefore, increasing economic activity and sinking the unemployment and deflation. On the divergent, the Classical and Neoclassica1 Schools of thought have paying attention on labor market inflexibility, for instance minimum wage and additional regulations as clarification for unemployment in economy. But this clarification may not be sufficient enough to explain the problem of unemployment known the heterogeneity of this problem in expressions of nature, pattern magnitude, reason of unemployment, and their impact in the economy. on the other hand in this perspective it is attractive to understand an important theoretical description of the relationship between unemployment and inflation revealed by A. W. Phillips. He predicts an inverse relationship between unemployment and inflation, presenting a downward sloped curve, popularly known as the Phillips curve (see the diagram). He clarify the tradeoff between unemployment and inflation, and show that how any attempt by governments is helpful to reduce unemployment was liable to source increased inflation.

There are different theories related to unemployment. Different economists distinguish between various types of and theories of unemployment, including structural unemployment, cyclical or Keynesian unemployment frictional unemployment, and classical unemployment.

Cyclical or Keynesian unemployment is also known as deficient-demand unemployment, it occurs when those who wants to do work but jobs are not provided by them due to the lack of aggregate demand in the economy. Demand for most good and services fall down, less production is needed and consequently a fewer work are needed for these goods and wages are sticky that do not fall to the meet the equilibrium level in the economy, and result is the mass unemployment . this type of unemployment occurs during the great depression of the 1930s. in cyclical unemployment the number of unemployed workers the number of existing job vacancies , so that even in full employment were attained and mostly open jobs were fille due to this some workers still remained unemployed. cyclical unemployment is associated with frictional unemployment at some extent because the factor that cause to create frictional unemployment are partially caused by cyclical variables. For example , a decrease in the supply of money surprisely may shock rational economic factors in the economy and suddenly inhabit the aggregate demand.

Classical economist reject the conception of cyclical unemployment and gives the alternatively suggestion that is invisible hand of free market would response quickly to unemployment and underutilization of resources by a fall in wages result is rise in employment.

Keynesian economist on the other hand result is the lack of demand for jobs are potentially resolved by the govt intervention. Keynesian other suggested interventions involves deficit spending to boost employment and demand. Another intervention involves expansionary monetary policy that increases the demands of money that reduced the interest rates that leads the increase in non government spending.

Next theory is Marxist theory of unemployment this theory is presented by Karl Marx, unemployment is inherent within the unstable capitalist system and periodic crises of mass unemployment are to expected. Proletariat function within capitalist system provides “reseve army of labour” that create a downward pressure in wages. That accomplished by dividing the proletariat into surplus of labor and under employment. Reserve army of labor basically fights among themselves for the purpose of scaring jobs at lower and lower wages. At first point, unemployment seems to be inefficient since the profit of unemployed worker do not increase. However, unemployment is considered profitable within the global capitalist system because unemployment at lower wages which is the cost from the perspective of the owners and from this perspectives low wages provide the benefit of the system of reducing economic rents. Yet it does not provide benefits for workers. The capitalist system manipulates the market for labour unfairly by perpetuating unemployment which lowers laborers and demand for fair wages.

According to Marx, to eliminate the unemployment permanently there is only one way that would be to abolish the capitalism system in the economy and the system of forced competition for wages and then it shift to a socialist economic system. Acording to Marxists, existence of persistent unemployment is proof of the inability of capitalism that ensur the full employment in the economy.

Now we will discuss about involuntary unemployment. in the general theory , keynsian argued about neo-classic economic theory he said that nea-classic theory did not apply during recessions because of excessive savings and weak , poor investment in the economy. As a result people could be thrown out of work involuntarily baises and did not able to find the acceptable and reliable employment.

This conflict between the Neo-classical and keynsian theories had a very strong influence on govt policy that works. The tendency for government is to eliminate and to curtail the unemployment in the economy through increasing the benefits and govt jobs opportunities and to enhance the ability of job seekers to the both considered new careers and relocation to different city. In voluntary unemployment basically does not exist in agrarian societies and its not formally and easily recognized to existence of underdeveloped countries but it can be find in urban societies. We can take the example of mega-cities of Africa, Pakistan and india. In these societies, a suddenly unemployed person is able to meet their survival needs either by getting a new job at any wage which is being offered. Involuntary unemployment is basically discussed in novels of social suffering and from the narrative standpoint in stories.

The concept of full employment can be discussed in Demand -based theory. We can abolish the cyclical unemployment in th


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