Unemployment in reality is taken in sense of involuntary unemployment.
Involuntary unemployment refers to a situation when people are willing to work
at the prevailing wage rate. But they are unable to find the work.
Types of unemployment
- Cyclical unemployment
- Frictional unemployment
- Structural unemployment
- Open unemployment
- Disguish unemployment
- Educated unemployment
a. Cyclical
unemployment:
It is associated with the downsizing and
depression phases of business cycle. During the downsizing and depression phase
of business cycle income fall then aggregate demand also falls and output fall
giving rise to widespread unemployment. It is caused by deficiency in aggregate
demand.
b. Fictional
unemployment:
Frictional unemployment exists when there is
lack of adjustment between demand and supply of labour force. People leave job
for many reason and they take time to find new jobs because of lack of
knowledge and mobility on part of the labour. This gives rise to temporary
unemployment of those workers who are moving between jobs. Unemployment caused
by movements of people from one job to another.
c. Structural
unemployment:
Unemployment in Nepal is basically structural
in nature, which refers to a situation when a large number of persons do not
get work because of limited job opportunities available. This is known as
structural unemployment.
d. Open
unemployment:
Open unemployment refers to a situation when
there are some workers who have absolutely no work to de. They are willing to
work at the present wage rate but they are forced to remain unemployment in the
absence of work.
e. Disguish
unemployment:
It refers to a situation when a person is
apparently employment, but in fact is unemployed. It is not open for everyone
to see. It remains canceled or hidden. This type of unemployment prevails
mostly in villages.
f. Educated
unemployment:
It refers to the unemployment among the
educated. Some of these people may be unemployed in the sense of open
unemployment i.e. they are not doing any work whatever.
Keynesian theory of employment (Principle of
effective demand)
British economist J. M Keynes in
1930s developed macro economics as a field of economic analysis, different from
micro-economics. Keynes propounded the theory of employment, which is also
known as principle of effective demands. According to this theory unemployment
arises due to the deficiency of effective demand and method to control
unemployment is to raise effective demand. According to Keynes the level of
employment in short run will depend on aggregate effective demand for goods and
services in the country. Greater the aggregate demand greater will be the
volume of employment and vice-versa. Total employment depends on total demand
and unemployment is the result of a deficiency of total demand. Effective
demand represents total money spends on consumption and investment.
Assumptions:
- There is the existence of closed economy.
- There is operation of law of diminishing returns.
- Perfect competition market exists in the society.
- Less than full employment equilibrium is possible in short run time
period.
- Labour supply in the economy is positively related to money wages.
Aggregate Demand Price / Function (ADP)
When the entrepreneur provides employment to the labour, they produce
goods and services. The entrepreneur receives certain fixed amount of money from
the sale of that product. Hence, the aggregate demand price refers to the
receipt which all the entrepreneurs taken together expect from of the sale of
the output. In brief, ADP means the expected price or income when certain
volume of employment is given. The expected receipts are different to different
level of employment. A schedule of receipts expected from the sale of output
from various amount of employment is called aggregate demand function.
Aggregate Supply Price (ASP)
The entrepreneur should bear certain production cost when he gives
employment to a fixed number of labour. Hence, he should get at least a minimum
amount from the sale of output while giving employment. Therefore, ASP refers
to the amount of money that the entrepreneur taken together must receive from
the sale of output as given level of employment. In brief, ASP is the
production cost of total output at a given level of employment.
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