CONCEPT OF UNEMPLOYMENT
INTRODUCTION
Unemployment is a key measure of economic health. It is a major factor in determining how healthy an economy is; if the economy maximized efficiency, everyone would be employed at some wage. An individual unemployed is both unproductive and a drain on society’s resources. However, while unemployment seems a basic statistic – the number without jobs divided by those with jobs – the issue is anything but. Unemployment is a powerful statistic that shapes government policy and personal decisions.
In most less developed and in some developed countries in the world, people who are without work and actively seeking work are said to be unemployed. The clear point is that it is the general issue that the world at large is suffering from, and it is giving many Governments cause for worry considering that the goal of Government is to provide full employment at all times. It is a persistent and unimaginable problem facing all industrial countries of the world.
There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment. Classical economicsand New classical economics argue that market mechanisms are reliable means of resolving unemployment. These theories argue against interventions imposed on the labour market from the outside, such as unionization, bureaucratic work rules, minimum wage laws, taxes, and other regulations that they claim discourage the hiring of workers.
Keynesian economics emphasizes the cyclical nature of unemployment and recommends government interventions in the economy that it claims will reduce unemployment during recessions. This theory focuses on recurrent shocks that suddenly reduce aggregate demand for goods and services and thus reduce demand for workers. Keynesian models recommend government interventions designed to increase demand for workers; these can include financial stimuli, publicly funded job creation, and expansionist monetary policies. It’s namesake, economist John Maynard Keynes, believed that the root cause of unemployment is the desire of investors to receive more money rather than produce more products, which is not possible without public bodies producing new money.
In addition to these comprehensive theories of unemployment, there are a few categorizations of unemployment that are used to more precisely model the effects of unemployment within the economic system. The main types of unemployment include structural unemployment which focuses on structural problems in the economy and inefficiencies inherent in labour markets, including a mismatch between the supply and demand of labourers with necessary skill sets. Structural arguments emphasize causes and solutions related to disruptive technologies and globalization. Discussions of frictional unemployment focus on voluntary decisions to work based on each individuals valuation of their own work and how that compares to current wage rates plus the time and effort required to find a job. Causes and solutions for frictional unemployment often address job entry threshold and wage rates. Behavioral economists highlight individual biases in decision making, and often involve problems and solutions concerning sticky wages and efficiency wages.
This study will exhaustively discuss the concept of unemployment under the classical and keynesian perspectives, review previous and current literatures and specifically look at unemployment and poverty in Nigeria and finally see what policies are in place to reduce with possible options of eliminating both.
1.0 THE CONCEPT OF UNEMPLOYMENT
1.1 OVERVIEW OF UNEMPLOYMENT
The government keeps a close eye on the unemployment rate. Not only does unemployment indicate that the economy isn’t operating at peak efficiency, but politicians have noticed that high unemployment correlates with losing elections. The Government believes that unemployment below a certain threshold they refer to as the natural rate of unemployment leads to inflation, reflecting an observation by the economist A. W. Philips correlating unemployment to inflation during the 1960s.
Economists distinguish between various overlapping types of and theories of unemployment, including cyclical or Keynesian unemployment, frictional unemployment, structural unemployment and classical unemployment. Some additional types of unemployment that are occasionally mentioned are seasonal unemployment, hardcore unemployment, and hidden unemployment.
Though there have been several definitions of “voluntary” and “involuntary unemployment” in the economics literature, a simple distinction is often applied. Voluntary unemployment is attributed to the individual’s decisions, whereas involuntary unemployment exists because of the socio-economic environment (including the market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment is voluntary, since it reflects individual search behavior. Voluntary unemployment includes workers who reject low wage jobs whereas involuntary unemployment includes workers fired due to an economic crisis, industrial decline, company bankruptcy, or organizational restructuring.
According to International Labour Organization, which is an organization generally allowed in keeping records of employment and unemployment rates of the nations of the world, about 6% of the world population were unemployed in 2012. Before the end of 2013, the body predicted that about 73.4 Million young people are expected to be out of work in 2013.
From 2009 to 2011 the youth unemployment rate decreased from 12.7 per cent to 12.3 per cent. It increased again to 12.4 per cent in 2012 and has continued to ascend to 12.6 per cent in the year 2013. This is 1.1 percentage points above the 2007 level of 11.5 per cent. Global youth unemployment is estimated to be 73.4 million in 2013, which is an increase of 3.5 million since 2007 and 0.8 million above the 2011 level (International Labour Organization 2012 ).
In Nigeria, the problem of unemployment is like thorn in the flesh of many citizens of the country. There are many causes of unemployment in Nigeria and possible solutions. It gives sleepless night to a lot of persons living in that part of the universe as they pray day and night for God to come and intervene. Many who were good Christians and practice good now turn to do what is not supposed of them due to high unemployment rate in the country. Those who have been waiting to turn over new leaf (changing for the better) by securing good lucrative jobs are becoming tired of waiting. Vanguard News online report on Monday, May 19, 2014 said that an estimate of about 60 million Nigerians are unemployed. Nigeria is made up of population of 140 Million according to report by National Population Commission in 2006; though there is increase in recent time.
The most affected in the rate of unemployment that people of different parts of the world are facing are the youth. According the International Labour Organization, 13 percent of young people under the age of 24 years were employed in 2012. It went further to say that about 35 percent of the unemployed ladies and gentlemen have been out of work for six months (2012 report). In the same year, those who were most affected by unemployment were East Asia, South Asia, and Sub Sahara Africa.
In most developed countries, like the European countries, unemployment is also a bane of many people’s life. The youth unemployment rate in 2012 is estimated at 18.1 per cent, the same rate as in 2010 and the highest level in this region (Europe) in the past two decades . This report shows that unemployment had been a serious problem even among those whom other people who live in undeveloped part of the universe think are safe.
Unemployment among African youths is the most pressing among every other Continents. Nigeria is also experiencing youth unemployment and other challenges thereof.. In 2012, youth unemployment rate was highest in the Middle East and North Africa, at 28.3 per cent and 23.7 per cent, respectively. Africa is a poor continent and this have added to the high level of unemployment they have been facing.
1.2 DEFINATION OF UNEMPLOYMENT
The International Labour Office (ILO) defines the unemployed on the Thirteenth Conference of Labour Statistics as persons without work, who are currently available for work and seeking work. The concept thus refers to the definition of employment: Persons in paid work could be “at work, […] performing some work for wage or salary”, or could be “with job but not at work, having already worked in their present job, were temporarily not at work […] and had a formal attachment to their job”. Self-employed person are defined as being “at work, […] performing some work for profit” or being “with an enterprise but not at work, […] who are not at work […] for any specific reason”. To comply with this definition, working for at least one hour is sufficient. The main criterion here is formal job attachment, not the main activity. Consequently, students with a part-time or marginal job are included, as well as persons on leave, laid-off persons, short-time workers, apprentices and members of the armed forces (ILO 1983)4 . In absence of a formal work attachment – but fulfilling the criteria mentioned above (available and searching for work) – persons are counted as unemployed even independent from their primary activity status (i.e. student).
According to Bryn and Stroble (2001) a person is unemployed if the person is (a) not working, (b) currently available for work and (c) seeking work.
Uzochukwu (2015) defined unemployment as what occurs when people are without work and actively seeking work. It is a condition where qualified citizens of many nations who are supposed to engage in one function or the other and have them paid by the employers are not employed. Unemployment is when somebody is not working in any firm or under any organization irrespective of the fact that the person is qualified for the function.
Unemployment is defined by the Bureau of Labor Statistics (BLS) as people who do not have a job, have actively looked for work in the past four weeks, and are currently available for work. Also, people who were temporarily laid off and are waiting to be called back to that job are included in the unemployment statistics.
Those who have not looked for work within the past four weeks are not only no longer counted among the unemployed, they are also removed from the labor force by the BLS.
The Economics Help Organization defined unemployment asthe number of people in the work force who want to work but do not have a job. It is generally stated as a percentage and calculated by dividing the number of people who are unemployed by the total work force.The work force is made up of those people who want to work; it excludes people who are retired, disabled, and able to work but not currently looking for a position; for instance, they may be taking care of children or going to college.
According to Wikibooks (2013) unemployment has several definitions, one being those members of the population that are actively looking for work and have not found it in a certain period. The main problem with this definition is that people who become disappointed and are no longer actively looking for a job are not counted as unemployed even though they might still want to work.
These are various definitions but all pointing to unemployment as a situation where people who are able and want to work cannot secure employments.
1.3 CLASSICAL AND KEYNESIAN PERSPECTIVES OF UNEMPLOYMENT
1.3.1 CLASSICAL MODEL OF UNEMPLOYMENT
Under the classical perspective,unemployment is seen as a sign that smooth labor market functioning is being obstructed in some way. The Classical approach assumes that markets behave as described by the idealized supply-and demand model (Goodwin et al, 2006).
1.3.1.1 Classical Labour Demand
He further stated that the demand for labor in the entire economy is simply the aggregate demand for labor from each company. It follows that the behavior of the demand curve is the aggregate behavior of every company in the economy. In this light, it is easier and simpler to analyze unemployment from the standpoint of an individual company and extrapolate that behavior to the entire economy. We can safely assume that the ultimate goal of any company is to maximize profit. It is a small leap from there to assume that as long as employing additional labor will increase profit, the company will employ additional labor; and that the inverse is true. Profit is defined as a firm’s revenues minus its expenses. In this simplistic model, we will assume that the only expenses a company incurs are the cost of capital and the wages paid to employees. While the firm will incur other expenses such as legal fees, marketing, pensions, and general operating overhead, the model does not need to consider these factors to explain the relationship between firm profit and labor demand. Therefore, if we have a company such as General Motors, its profit will be a function of how many cars it can sell and at what price, minus its expenses, which are the number of workers employed at some wage and the cost of the capital. Furthermore, we will assume that this example occurs in the short term and thus revenue per product sold, wage per worker, and cost per unit of capital are all constant.
Thus, we can express this as a function P(n,i,m) that describes profit:
P(n,i,m) = rn – wi – km
Where P(n,i,m) = function describing profit,
r = revenue per product sold,
n = amount produced = function n(i) dependent on I
w = wage per worker,
