UNEMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT N

Unemployment pdf

1. UNEMPLOYMENT: ISSUES, DIMENSIONS, AND ANALYSES
“Many parts of the world are witnessing a new phenomenon-jobless growth. Even when output increases, increase in employment lags way behind.”
United Nations Development Program, Human Development Report, 1993
“The current employment situation represents an enormous waste of resources and an unacceptable level of human suffering. It has led to growing social exclusion, rising inequality, and a host of social ills.”
International Labor Organization, World Employment Report, 1995

2. THE EMPLOYMENT PROBLEM: SOME BASIC ISSUES

3. 1 2 3
Unemployment and
underemployment
regularly and
chronically affect
much larger
proportions of least
developed countries
(LDC) labor forces
than unemployment
did in the
industrialized
countries, even
during the worst
years of the Great
Depression.
Third World
employment
problems have
much more
complex causes
than
employment
problems in the
developed
countries.
Whatever the dimensions and causes of
unemployment in Third World nations, it is associated
with human circumstances of abject poverty and low
levels of living. There is an urgent need for concerted
policy action by both the less developed and the more
developed nations.
Least developed countries need to readjust
domestic policies to include employment creation
as a major social and economic objective,
While the developed countries need to review
and readjust their traditional economic policies
via-à-vis (opposite) the Third World, especially in
the areas of trade, aid, and technology transfer.
The employment problem in Third World countries therefore has a number of facets that make it historically
unique and thus subject to a variety of unconventional economic analyses. There are three major reasons for
this:

4. FOUR DIMENSIONS OF THE EMPLOYMENT PROBLEM
The unique nature of the employment problem in developing countries is most vividly revealed
in four areas: the educated unemployed, self-employment, women's work, and youth
unemployment.

5. THE
EDUCATED
UNEMPLOYED
Table 7.3 shows that for many Third World nations, unemployment rates rise with higher levels of
schooling. One reason for this is that the least educated cannot afford to be openly unemployed
and must seek any kind of work in the urban informal sector. Even though they may be grossly
underemployed-working, say, only one day a week- these people are not counted as being
unemployed. Secondary school and university graduates can usually afford to search for higher-
paying jobs and are thus more likely to be counted among the openly unemployed.

6. SELF-EMPLOYMENT
Table 7.4 shows that much larger
percentages of LDC labor forces are
engaged in self-employment activities than
workers in developed countries. Moreover,
while almost all of the self-employed in
developed countries are involved in small
businesses. Their objective is day-to-day
survival, and they constitute most of the
underemployed.
In many developing countries, the inability of people to find salaried employment in the modern (formal-
sector) economy forces them to pursue self-employment in the traditional or "informal" economy, in both
urban and rural areas.

7. WOMEN & EMPLOYMENT
Most economically active women work either in agriculture (78% in Africa and 80% in Asia)
or in the urban informal sector (25% to 40% in Latin America). Women’s nonagricultural jobs
tend to be in low-status production-line work, often for export. Women are routinely
discriminated against in terms of pay scales, job advancement, and job security. They are also
more likely to be unemployed than men.

8. YOUTH UNEMPLOYMENT AND CHILD LABOR
The most conspicuous dimension of the unemployment problem in Third World countries is its
prevalence among people between the ages of 15 and 24 years. Youth unemployment affects both
educated and uneducated, women as well as men. Many have recently migrated from the rural
countryside, and their ex- pectations of finding well-paid work are often unrealistically high.
The International Labor Office has estimated that almost 60 million LDC children under the age of
14 work long hours for pitiable low wages under horrible working conditions.

9. First, whatever the overall magnitude of the population growth rate, its fertility and mortality
components have a separate significance. The age structure of the population will be different
for a high-birth-and-death-rate economy than for a low-birth-and-death-rate one, even though
the natural rate of increase is the same for both. Birthrates affect only the numbers of newly
born, whereas death rates affect all age groups (although unevenly), a high-birth-and-death-rate
economy will have a greater percentage of the total population in the dependent age group (0-
15 years) than a low-birth-and-death-rate economy will.
The number of people searching for work in a less developed country depends primarily on the
size and age composition of its population. Among the numerous processes relating trends in
overall population growth to the growth of indigenous labor forces, two are of particular
interest:
LABOR FORCE: PRESENT AND PROJECTED

10. Second, the impact of fertility decline on labor force size and age structure op- erates only with very
long lags, even when the decline is rapid. The reason is the phenomenon of population momentum. For
example, a 50% fall in LDC fertility rates by 2000 will reduce the male labor force by only 13% by the
year 2015, a reduction from about 1.39 to 1.21 billion workers. The essential fact remains that
everyone who will enter the labor force over the next 15 years has already been born, and the size of
the labor force two decades hence is largely determined by current fertility rates.
Present labor force statistics reveal annual increases on the order of 2.2% for the for all less developed regions
duting the 1980s and approximately 2.1% for the 1990s. The total developing-world work force of around 1.8
billion people in 1990 is expected to grow by 300 million by 2000 and by an additional 1 billion during the
first quarter of the twenty-first century. Every year during the 1990s, Third World countries will have to
create more than 30 million new jobs just to prevent the present extraordinary total of 500 million
unemployed or underemployed LDC workers from growing even more.
LABOR FORCE: PRESENT AND PROJECTED

11. LABOR UNDERUTILIZATION: SOME DEFINITIONAL DISTINCTIONS
In addition to the numbers of people unemployed, many of whom may receive minimal incomes
through the extended family system, it is also necessary to consider the dimensions of
(1) time (many of those employed would like to work more hours per day, per week or per year),
(2) intensity of work (which brings in considerations of health and nutrition), and
(3) productivity (lack of which can often be attributed to inadequate complementary resources with
which to work).

12. FIVE FORMS OF UNDERUTILIZATION OF LABOR:
OPEN UNEMPLOYMENT1.
both voluntary and involuntary. Although voluntary unem- ployment was more prevalent in the growth
decades of the 1960s and 1970s, in the slow-growth and demand-constrained 1980s and 1990s,
most unemployment has been of the involuntary variety.
2. UNDEREMPLOYMENT
people working less than they could like to work. This is the predominant form of contemporary labor
underutilization.
3. THE VISIBLY ACTIVE BUT UNDERUTILIZED
people who would not normally be classified as either unemployed or underemployed by the
definitions just given but who in fact have found alternative means of "marking time," including these:
a. Disguised underemployment. Many people seem occupied on farms or em- ployed in government on a full-time basis even though the services they
render may actually require much less than full time.
b. Hidden unemployment. Many people are engaged in second-choice nonemployment activities, such as education or housekeeping, primarily because
job opportunities are not available either at the levels of education already attained or, for women, due to social mores.
c. Premature retirement. This phenomenon is especially evident, and appar- ently growing, in the civil service.
4. THE IMPAIRED
people who may work full time but whose intensity of effort is se- riously impaired through
malnutrition or lack of common preventive medicine.
5. THE UNPRODUCTIVE
people who can provide the human resources necessary for productive work but who struggle long
hours with inadequate complementary resources to make their inputs yield even the essentials of life.

13. Table 7.7 clearly reveals this linkage in five
Latin American countries. We see that 47%
to 65% of the unemployed are concentrated
in the bottom two quintiles of the income
distribution scale, while unemployment rates
among the bottom 40% are three to four
times the amount of those of the top 40%.
For the most part, people without regular
employment or with only scattered part-time
employment are also among the very poor.
Those with regular paid employment in the
public and private sectors are typically
among the middle- and upper-income
groups. But it would be wrong to assume
that everyone who does not have a job is
necessarily poor or that all who work full
time are relatively well- off.
LINKAGES AMONG UNEMPLOYMENT,
POVERTY, AND INCOME DISTRIBUTION

14. Table 7.8 shows many developing countries growth
of manufacturing output, even during the rapid-
growth years of the 1960s, exceeded the growth of
employment by a factor of 3 or 4 to 1. For the
majority of LDCs, this phenomenon of jobless
growth or what has more formally been called the
output-employment lag continued into the 1980s,
when output growth slowed and real wages
declined, particularly in Africa and Latin America.
And it is projected to continue further to the year
2000 as shown in Table 7.9.
THE PHENOMENON OF JOBLESS GROWTH AND
THE OUTPUT-EMPLOYMENT LAG

15. The contrast between the present urban situation in LDCs and the historical situation in the now more developed
countries is worth noting. In nineteenth-century Western Europe, the pace of industrialization was much faster than
that of urbanization. The percentage of the workforce in industry was always higher than that of the population
living in cities.
By contrast, the pace of industrialization in less developed countries has been much slower than that of urbanization.
In almost all Third World countries, the percentage of the population living in cities greatly exceeds the proportion
engaged in manufacturing.

16. ECONOMIC MODELS OF EMPLOYMENT DETERMINATION
Over the years, economists have formulated a number of economic models of em- ployment
determination. The majority of these models have focused on or been derived from the social,
economic, and institutional circumstances of the developed nations.

17. Free-market classical model- forms the substance of the traditional theory of employment. 1.
Output-employment macro model- focuses on the relationship among capital accumulation,
industrial output growth, and employment generation.
2.
Price-incentive micro model- considers the impact of distorted factor prices on resource
(especially labor) utilization.
3.
THE THREE ECONOMIC MODELS OF EMPLOYMENT DETERMINATION:
Both the output-employment and price-incentive models concentrate
exclusively on the demand side of the employment equation; they focus
on policies to increase labor demand.
A fourth model or group of models, which we designate as two- sector
labor transfer or rural-urban migration models, focus on the determinants
of both demand and supply.

18. THE TRADITIONAL COMPETITIVE FREE-MARKET MODEL

19. FLEXIBLE WAGES AND FULL EMPLOYMENT
In traditional free-market economics-
characterized by consumer sovereignty, in-
dividual utility and profit maximization,
perfect competition, and economic
efficiency with many "atomistic" producers
and consumers, none of whom is large
enough to influence prices or wages- the
level of employment and the wage rate are
determined simultaneously with all other
prices and factor uses in the economy by
the forces of demand and supply.

20. We see from Figure 7.1 that only at one point, the
equilibrium wage rate will the amount of work
that individuals are willing to supply just equal the
amount that employers will demand. At any higher
wage, like W2, the supply of labor will exceed its
demand, and competitive pressures among workers
will force the wage rate down to We. At any lower
price, like W1, the labor quantity demanded will
exceed the quantity supplied, and competition
among producers will drive the wage rate up until it
reaches its equilibrium level at We.
At We, total employment will be Le on the horizontal axis. By definition, this will be full employment at
the equilibrium wage and only at this wage will all people willing to work be able to obtain jobs so that
there is no involuntary unemployment. In other words, in the idealized flexible wages world of classical
free-market economics, there can never be unemployment.

21. OUTPUT AND EMPLOYMENT GROWTH: CONFLICT OR CONGRUENCE?

22. In general, increases in labor productivity are desirable.
But what is really desirable are increases in total factor
productivity: output per unit of all resources. But
increases as a result capital for labor in production
processes or as a result of the importation of
sophisticated and expensive laborsaving machinery and
equipment may be less satisfactory in heavily populated
nations.
GROWTH AND EMPLOYMENT: THE CONGRUENCE ARGUMENT

23. APPROPRIATE TECHNOLOGY AND EMPLOYMENT GENERATION: THE PRICE-INCENTIVE MODEL

24. FACTOR-PRICE DISTORTIONS AND APPROPRIATE TECHNOLOGY
Given that most Third World countries are endowed with abundant supplies of
labor but possess very little financial or physical capital, we would naturally
expect production methods to be relatively labor-intensive. But in fact we often
find production techniques in both agriculture and industry to be heavily
mechanized and capital-intensive. Large tractors and combines dot the rural
landscape of Asia, Africa, and Latin America while people stand idly by. Gleaming
new factories with the most modern and sophisticated automated machinery and
equipment are a common feature of urban industries while idle workers
congregate outside the fac- tory gates. Surely, this phenomenon could not be the
result of a lesser degree of economic rationality on the part of Third World
farmers and manufacturers.
The net result of these factor-price distortions is the encouragement of
inappropriate capital-intensive methods of production in both agriculture and
manufacturing. Note that from the private-cost-minimizing viewpoint of
individual firms and farms, the choice of a capital-intensive technique is correct.
It is their rational response to the existing structure of price signals in the market
for factors of production. However, from the viewpoint of society as a whole, the
social cost of underutilized capital and, especially, labor can be very substantial.

25. The three economic models of employment reviewed in this chapter provide in sights
into the complex nature of LDC labor market problems.
(1) that factor prices do matter for resource allocation and employment creation;
(2) that government policies designed to promote industrialization often at the expense
of agricultural growth have typically exacerbated the unemployemnt and
underemployment problems of both urban and rural areas, and
(3) that policies intended to stimulate efficient, labor-intensive methods of production
need not lead to lower levels of output growth.
Finally, the urban bias found in many development strategies has contributed directly
and indirectly to both an excessive rate of rural-to-urban migration and a rapid rise in
urban unemployment.
C
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26. The Arab Republic of Egypt is located in the northeastern
corner of the continent of Africa. It is surrounded on the north
by the Mediterranean Sea, on the east by Israel and the Red
Sea, on the south by Sudan, and on the west by Libya. Egypt
encompasses an area of 1.1 million square kilometers.
Population figures for 1995 give Egypt's population as 61.9
million, with an annual growth rate of 2.0%. Estimated figures
from 1994 give the per capita GNP of Egypt as U.S. $710 with
an annual real growth rate of 1.6% between 1985 and 1994.
The terrain in Egypt is mostly desert (96.5%). Cultivated areas
take up another 2.8% with inland water making up the dif-
ference (0.7%). It is interesting to note that the urban areas are
located in the desert. The two major cities are the capital,
Cairo, and Alexandria.
CASE STUDY

27. The major types of industry in Egypt are food processing, textiles, chemicals, petro-chemicals,
construction, light manufacturing, iron and steel, aluminium, cement, and mili- tary equipment. Egypt
has been endowed with few natural resources. Petroleum and natural gas are the two most important
ones. Petroleum is a major export.
The main agricultural products are cotton, rice, onions, beans, citrus fruits, wheat, corn, barley, and
sugar. Almost all the farming in Egypt is done in the very fertile Nile Valley. The climate and the ready
availability of water in effect double the productivity of each crop. Considering the traditional methods
used, productivity is quite high.
Substantial strides have been made in the area of education. But there are problems re- lating to
dropout rates and employment poli- cies. In 1990, the adult literacy rate stood at 48%, despite
compulsory schooling from ages 6 to 12. Schooling is free through the university level for students who
meet academic stan- dards. An estimated 80% of school-age children enter elementary school, but only
half finish the sixth grade. Of those who enter the school sys- tem, only 2% graduate from university.
Egypt has a quality health-care system for a country at its general level of economic major role in the
crisis. Urban growth is es- timated at 4% per year and increasing. In ad- dition, much of the existing
housing is of poor quality and lacking in clean water and sani- tary facilities.

28. The problems that Egypt faces will persist. Economic hardships for the nation began in 1986. Falling oil
prices and low tourist earn- ings made it very difficult to service the $38 billion foreign debt that Egypt
had accumu- lated. Fortunately, much of this debt was for- given following Egypt's active role in the
1991 Persian Gulf War against Iraq. Thereafter, the Egyptian government initiated a major re- view of
economic policy, aimed at promoting a greater role for the private sector. This pro- gram enabled Egypt
to qualify for additional financial assistance from the International Monetary Fund (IMF). The chronic
trade deficit that Egypt has accumulated will be very difficult to deal with. Egypt's major im- ports are
foodstuffs. The desert terrain makes it increasingly difficult to grow the necessary items domestically. As
a consequence, Egypt must look to export promotion of manufac- tured goods as a possible solution.
But con- sidering the highly competitive nature of the world market for manufactured exports, it could be
in for some difficult times.
The success or failure of the government's Economic Reform and Structural Adjustment Program,
however, will hinge not so much on how many public enterprises are privatized or whether the trade
deficit and public deficit are reduced. Rather, it will depend on Egypt's ability to control its rising
unemployment rates by creating enough jobs to offset its bur- geoning labor force. With a population
growth rate that adds more than 1.2 million people every year, this will be an enormous task.

29. THANKS
MATURAN, ABIAR, & CUI
Presentation