Unemployment

The measure of unemployment currently used is the number of persons registered as unemployed and claiming benefit. It has been suggested that this figure understates the true number of persons wishing to be economically active, but unable to find a job.

Causes of Unemployment

There are several categories of unemployment. It is important to

distinguish between them as they will require different treatment.

• Search unemployment. Persons who are made redundant will need time to search for and start a new job. The time involved in such searching may be increased by recession and the consequent fall in the demand for labour.

• Seasonal unemployment. Fluctuations in demand for labour in certain industries will be linked either to the seasonal nature of production, e.g. agriculture, or to seasonal patterns of demand, e.g. children's toys at Christmas, or summer holidays.

• Technological unemployment. This may result from new technology causing a change in the pattern of demand, e.g. where a new product replaces one of inferior quality. It may also occur where an established industrial process is replaced by new machinery, requiring less labour. Skills may then become obsolete, as in steel making, leading to sudden and often very localized increases in

unemployment. This sort of change may also be referred to as 'structural unemployment'.

• Cyclical or demand deficiency unemployment. Fluctuations of demand, caused by the pattern of the business cycle, may compound some of the above effects to produce sudden increases in unemployment.

• Unemployment due to obstructions to the labour market. Monetarists believe that this is the major cause of long term unemployment. They see the excessive national bargaining power of trade unions as being especially important. They believe that workers are then priced out of work by excessive increases in real wages. They also see excessively high unemployment benefits as a cause of longer search times, thus increasing the number of workers unemployed at a given time.

Those economists who adopt a supply side approach are likely to emphasize the importance in creating unemployment of excessive increases in real wages, obstructions to the labour market and high levels of welfare benefits. Those who adopt a Keynesian approach¹ are likely to emphasize the importance of inadequate levels of aggregate demand. Their prescriptions for reducing unemployment will reflect these views. On the other hand, those who support the supply side approach will emphasize the importance in reducing unemployment of restraining the power of the unions, reducing the real value of benefits, and improving the sources of information about available vacancies. Keynesians, on the other hand, argue for increases in government spending, encouragement for investment in the private sector and a relaxation of credit to encourage consumer demand and reduce unemployment.

Responses to Unemployment

Governments may respond in a number of ways to high or increasing levels of unemployment.

• If it is believed that a deficiency in aggregate demand is the cause of unemployment, it is possible to increase demand by use of a package of measures, fiscal and monetary. Thus the government might lower taxation and/or increase public spending. It might increase effective demand by removing restrictions on credit creation by the banking system and/or by lowering interest rates to induce both individuals and businesses to borrow for consumption or investment purposes.

• If it is believed that imperfections in the labour market are the cause of unemployment, the government might seek to break the power of the unions by legislation. More modest wage increases might then help to “price” people back into work. Alternatively, the government might reduce the real value of benefits in order to make jobs on low wages more attractive.

• Where specific industries or regions are worst affected, it might use a policy of direct subsidy and regional aid measures in order to maintain existing jobs in the short term whilst encouraging the creation of new jobs.

¹Keynesian [keınzıən] approach – the economic theories and programs ascribed by John M. Keynes.

Exercise 44. Answer the following questions.

1. How can unemployment influence upon the economy? 2. What are the causes of unemployment?

3. How is it possible to reduce the level of unemployment?

4. What are economists’ perceptions for reducing unemployment?

5. What is the role of trade unions in restraining unemployment?

Exercise 45. Make up and write down sentences of your own using the following words and expressions.

* to encourage investments

* high levels of welfare benefits

* to make redundant

* labour market

* the cause of unemployment

* a relaxation of credit

* public spending

Exercise 46. Put questions to the words in italics.

1. The major cause of long term unemployment is obstructions to the labour market.

2. Fluctuations of demand may produce sudden increases in unemployment.

3. Persons who are made redundant will need time to search for and start a new job.

4. Governments may respond in a number of ways to high or increasing levels of unemployment.

5. It is possible to increase demand by use of a package of measures, both fiscal and monetary.

6. The government might reduce the real value of benefits in order to make jobs on low wages more attractive.

Exercise 47. Open the brackets in the following sentences using, the given words in the correct form.

1. The government __________ (to understate) the true number of

people who __________ (to wish) to be economically active, but

unable _______ (to find) a job.

2. It is important __________ (to distinguish) between several

categories of unemployment and ___________ (to give) them

different treatment.

3. Changes in technology may _________ (to lead) to sudden

increases in unemployment.

4. Improving the sources of information about available vacancies will _________ (to reduce) unemployment.

5. Imperfections in the labour market ___________(to be believed)

to be the cause of unemployment.

6. __________ (to make) jobs more attractive, the government

________ ( to reduce) the real value of unemployment benefits.

Exercise 48. Have a discussion on the topic «Unemployment». Use the following questions as a plan.

1. What is the measure of unemployment currently used?

2. Why does this figure understate the true number of people wishing to be economically active, but unable to find a job?

3. What categories of unemployment are there?

4. Why is it important to distinguish between different categories of unemployment?

5. What do the economists who adopt a supply side approach to unemployment emphasize?

6. What is a Keynesian approach to unemployment?

7. How can governments respond to high or increasing levels of unemployment?

8. What is the unemployment rate in Ukraine now?

9. What does the Ukrainian government do to reduce the level of unemployment?

10. Are unemployment benefits in Ukraine excessively high?

Exercise 49. Using active vocabulary, write a short summary of the text (not more than 150 words).