19. Disequilibrium in the labor market. Unemployment and its types and methods of measurement.

Labor market equilibrium occurs when labor demand meets labor supply. Equilibrium occurs at a wage where quantity supplied of labor equals quantity demanded of labor.

Point E is the equilibrium. For quantity demanded to equal quantity supplied, wage must equal w*. If w>w*, there would be excess of labor, which would appear as unemployment (see the chart above). If w<w*, there would be a shortage, which would appear as job vacancies. Thus, unemployment is a phenomenon connected with disequilibrium in the labor market.

Types of unemployment

-Frictional Unemployment is unemployment due to the time workers spend for job searching.

-Structural Unemployment is unemployment connected with structural shifts in production patterns, which changes demand for labor force in the economy.

Frictional Unemployment together with Structural Unemployment forms natural rate of unemployment, or the unemployment under the full employment of economic resources, which corresponds to the potential level of output in the economy. Some economists believe that it is unacceptable to use the term “natural” while speaking about unemployment associated with structural changes. For this reason, the term NAIRU (Non-Accelerating-Inflation Rate of Unemployment) is widely used in macroeconomics. This term focuses on the fact that this unemployment rate stabilizes inflation.

-Cyclical Unemployment represents a deviation from the natural rate of unemployment. Cyclical Unemployment occurs only during a recessionary phase of economic cycles.

Methods of measurement are complicated because there are no strict criteria for attributing individuals to employed or unemployed categories.

Generally, Employment is the number of people currently employed in the economy, either full time or part time. Unemployment is the number of people who are actively looking for work but aren’t currently employed. The labor force is equal to the sum of employment and unemployment.

Unemployment rate in the economy is usually determined by taking the following ratio: the number of unemployed to labor force.

20.Globalization and the polarization in the modern world economy.

Globalization is the process by which the economies of countries around the world become increasingly integrated over time.

Characteristics of economic globalization include a rapid increase in international trade in goods and services, as well as the free flow of labor and capital across borders. Technological and political factors drive modern economic globalization. Technological factors include improvements in transportation, which have reduced the cost of shipping goods internationally, and advances in communications and computer technology. Companies have learned to use these technological changes to their advantage, to be more active in the world economy. On the political front, nations have reduced tariffs and other trade barriers, allowing other countries’ goods access to their markets. Further, governments have worked together through international organizations such as the World Trade Organization to resolve economic problems.

Globalization is an inevitable phenomenon in human history that's been bringing the world closer through the exchange of goods and products, information, knowledge and culture. But over the last few decades, the pace of this global integration has become much faster and more dramatic because of unprecedented advancements in technology, communications, science, transport and industry. While globalization is a catalyst for and a consequence of human progress, it is also a messy process that requires adjustment and creates significant challenges and problems. This rapid pace of change can be unsettling and most societies want to control or manage it.

Globalization has sparked one of the most highly charged debates of the past decade.

When people criticize the effects of globalization, they generally refer to economic integration. Economic integration occurs when countries lower barriers such as import tariffs and open their economies up to investment and trade with the rest of the world. These critics complain that inequalities in the current global trading system hurt developing countries at the expense of developed countries.

Supporters of globalization say countries—like China, India, Uganda and Vietnam—that have opened up to the world economy have significantly reduced poverty.

Critics argue that the process has exploited people in developing countries, caused massive disruptions and produced few benefits. But for all countries to be able to reap the benefits of globalization, the international community must continue working to reduce distortions in international trade (cutting agricultural subsidies and trade barriers) that favor developed countries and to create a more fair system.

Some countries have profited from globalization:

China: Reform led to the largest poverty reduction in history. Between 1990 and 2005, poverty rates in the country fell from 60% to 16%, leaving 475 million fewer people in poverty.

India: Cut its poverty rate in half in the past two decades.

Uganda: Poverty fell 40% during the 1990s and school enrollments doubled.

Vietnam: Surveys of the country's poorest households show 98% of people improved their living conditions in the 1990s. The government conducted a household survey at the beginning of reforms and went back 6 years later to the same households and found impressive reductions in poverty. People had more food to eat and children were attending secondary school. Trade liberalization was one factor among many that contributed to Vietnam's success. The country cut poverty in half in a decade. Economic integration raised the prices for the products of poor farmers—rice, fish, cashews—and also created large numbers of factory jobs in footwear and garments, jobs that paid a lot more than existing opportunities in Vietnam.

But others have not: Many countries in Africa have failed to share in the gains of globalization. Their exports have remained confined to a narrow range of primary commodities. Some experts suggest poor policies and infrastructure, weak institutions and corrupt governance have marginalized some countries. Other experts believe that geographical and climatic disadvantage have locked some countries out of global growth. For example, land-locked countries may find it hard to compete in global manufacturing and service markets.

Over the last few years, there have been protests about the effects of globalization in the United States and Europe. But in a lot of developing countries there is very strong support for different aspects of integration—especially trade and direct investment, according to a recent survey conducted by The Pew Center. In sub-Saharan Africa, 75% of households thought it was a good thing that multinational corporations were investing in their countries.

What is the international community doing:

Some economists have described globalization as a fast train for which the countries need to "build a platform" to get on. This platform is really about creating a foundation to make sure the country functions well. It includes property rights and rule of law, basic education and health for the people, and reliable infrastructure (such as ports, roads, and customs administration).

International organizations, such as the World Bank, bilateral aid agencies and nongovernmental organizations, work with developing countries to establish this foundation to help them prepare for global integration.

When governments don't provide this foundation and basic services, poor people can't take advantage of the opportunities that globalization offers and are left behind. It is equally important that the government governs well. If a country's government is corrupt and incompetent, outside agencies really won't be able to make a difference.