Saturday, 12 January 2013

The Basics of Unemployment

In our world there exist a massive number of occupations. We live in a world where a wide variety of work is carried out simultaneously. Lawyers, doctors, factory-worker and government officials are only the tip of the iceberg. It possibly is impossible to list out all the types of occupations. Some of them are so unusual that you probably have never heard of them. For instance, have you heard of a computer-player factory in China that hires people to play through the difficult levels in online games for the computer nerds in the West? Probably not. It is interesting to note, the wild variety of jobs that arise from wild purposes. Everyday there are newer areas where people are needed. Who would've ever thought that there could be a market created by rich lazy gamers? 

It is very easy to understand that when all the people in a country are working, the country will perform better. Also if many people are unemployed then that country will not perform as well as it can. Economics, provides a deep insight into the nature of this employment. The branch Macroeconomics, tries to study the total unemployment in the country. It observes how far from potential performance is the country. It tells us the structure of the people who are unemployed, and finally it advises the governments on how they can aid the people and help provide jobs. A stable job, as it turns out is the central feature for all adults. It provides a means of sustenance and survival for some, and the ability to thrive for others. The first thing that Macroeconomists do while studying employment, is to define it properly. Who in fact is employed or unemployed? And who is neither? 

The Labor Force

All the people who are able bodied, fit of mind, legally allowed and eager to work are considered part of the labor force. Labor in this sense does not mean 'hard work' or carrying bricks. Even industrialists and teachers are in this sense part of the labor force. The whole question of the labor force arises because not everyone in the entire population can work. It seems silly to call children in the primary school as unemployed. Also, if your grandfather is currently relaxing at his holiday home, it wouldn't be nice to poke his conscience by calling him unemployed. Also if we included retired people and children while calculating unemployment we would get misleading data. So we chose to exclude children, old people, people with a mental illness, students pursuing higher studies and even those lazy househusbands. Another interesting feature of the labor force is that it only includes those people who are willing to look for work. So this means that your Uncle _____   (fill in the blank) who isn't even trying is not considered a part of the labor force. Apparently these discouraged people are not even that important to be considered while calculating employment.

Data : 2010

The participation rate finds out the ratio between the total adult population and the labor force. It is a percentage that tells us how much of the adult population is in some sense 'productive' and how many people who 'could have' been significant. A country with a high participation rate seems to perform better than one with a lower participation rate, all other factors being constant (commonly used economic phrase!). Also, the topic about homemakers not being a part of the labor force, is controversial and in my opinion a major flaw in the current method of calculating employment. It is hard to believe that stay-at-home-moms and cooking-dads add no value to the economy. 

Employment Rate

Within the labor force, after the necessary and sometime confusing deductions from total population, we have the employed and the unemployed. The unemployment rate is the percentage of people in the labor force who are unemployed. This data is extremely vital, and is studied intensely throughout the world. It is also one of the most important indicators of progress and welfare. This rate also helps us compare countries and the standard of living. This rate can make or break the careers of Politicians, and is a source for the never ending demand for economists (thankfully!). It is easy to see in the following table, that successful countries make the most of their resource and have a high employment rate.

Data : In and around 2010

It is important to note, the dimension of time in this picture.  Data for unemployment is usually found via a survey and hence the data corresponds to a time frame. So it makes more sense to say - "The employment rate Cuba in 1959 was 24%" than without mentioning the time of the survey.

How does one calculate Joblessness? 

The approach taken to figure Joblessness is simple. There are two tried and tested method to determining the rates. If you want to know whether your cousin Rohan is employed or not, you either ask him or you ask his boss. Hence, elaborating from that, the employment level is found by either a  household survey which goes from door to door people whether they have a job or not, or a payroll survey where the company provides details of its employees.

There are certain flaws of either method. For instance, a person holding two jobs might pop up twice on the payroll survey. A person who runs a small home based shop or business is said to be self-employed and is overlooked by the payroll survey. Also if you notice, the payroll survey only gives details on those employed and does not indicate 'unemployed'. This is like the joke, of a classroom teacher who wants to save herself the trouble of taking attendance by asking 'all those who are absent raise your hands'.

The household survey also yields other difficulties. If the information on the size of the population is incorrect then the information on employment is also. Legal and illegal immigration causes difficulties in collection of data. Some people might give incorrect information on their working status. They may choose to lie about their unemployment out of shame or lie about employment to reap the unemployment benefits that the government provides.

Some economists say one survey is better than other, and some say the opposite. This topic of employment also raises debate and controversy. 

Some Interesting Types of Unemployment 

Frictional Employment exists in the time period when a worker changes jobs. This transition time that he or she needs to search for another, is the cause for Frictional Unemployment. 
Long-term Unemployment is the unemployment that has lasted more than a year or so. Larger amount of long term unemployment can be disastrous for the country. 
Structural Unemployment occurs because of the unavailability of people to match the requirements of available jobs. For example, certain universities have vacant positions as the people who apply to become professors are not qualified enough. Structural Unemployment includes Technological Unemployment which is caused by the replacing of human workers by machines and automations. It is easy to see the emergence of this form of employment in the future. I have watched too many sci-fi movies to ignore the possible competition from cyborg economists. Structural Unemployment also includes Seasonal Unemployment which is caused by the losing of jobs because of seasons. Its easy to why umbrella-makers go out of work when the monsoon ends. Look at it this way : Santa is unemployed in Summer!

Unemployment brings grief and panic,making life harder for coming generations. Nations have been trying to tackle this problem since time immemorial. The great recession of 2007 brought a surge of unemployed into the picture and caused a massive slowdown of our economy. The great depression of the 1930's did much worse. A good government makes sure that its people have means of survival, and looks to lower its unemployment rate. For college students and young professionals these jobs are crucial. Low employment leads to high college dropouts and other problems. Be it getting a job or getting a friend one, the employment of an economy matters to each one of us.

Best of luck!
Economics is for everyone!