TABLE OF CONTENT
What is unemployment?
Types of unemployment
What is labor market
Labor market and unemployment in Pakistan
Labor policy in Pakistan
Labor Market challenges faced by Pakistan
Causes of unemployment in Pakistan
Effects of unemployment in Pakistan
How unemployment can be reduced
WHAT IS UNEMPLOYMENT?
Unemployment is the percentage of the workforce out of work but seeking employment. The social and political significance of the unemployment rate is enormous. The government is blamed when it is high and takes credit when it is low. Unemployment causes economic waste and human suffering. The largest cost of unemployment is lost output. In economics, unemployment refers to the state of joblessness within an economy. It is measured in terms of unemployment rate, which is the number of unemployed workers divided by the total labor force. Total labor force includes both employed and unemployed workers. Unemployment can be calculated as:
Unemployment = Total Labor Force – Employed Labor Force
Labor Force = Total number of unemployed + Total number of employed
TYPES OF UNEMPLOYMENT
At a very basic level, unemployment can be broken down into voluntary unemployment, unemployment due to people willingly leaving previous jobs and now looking for new ones, and involuntary unemployment, unemployment due to people getting laid off or fired from their previous jobs and needing to find work elsewhere. Not surprisingly, economists generally view involuntary unemployment as a larger problem than voluntary unemployment since voluntary unemployment likely reflects utility-maximizing household choices. Generally speaking, there are four main types of unemployment and they are: 1. Cyclical unemployment
2. Frictional unemployment
3. Structural unemployment
4. Classical unemployment
5. Seasonal unemployment
The term cyclical unemployment or demand-deficit unemployment refers to unemployment that occurs whenever total demand is insufficient to purchase all of the economies potential output, causing a recessionary gap in which actual output is less than potential output. Cyclical unemployment can be measured as the number of persons currently employed minus the number of persons who would be employed at potential income. When cyclical unemployment is zero, all existing unemployment is either structural or frictional, and the rate of unemployment is NAIRU. Macroeconomic theory has traditionally sought to explain only cyclical unemployment. Frictional unemployment results from the normal turnover of labor. Frictional unemployment is defined as the unemployment that occurs because of people moving or changing occupations. This type of unemployment is always present in the economy. An important source of frictional unemployment is young people who enter the workforce and look for jobs. Another source is people who are in the process of changing their jobs and are caught between one job and the next. Some may quit because they are dissatisfied with the type of work or their working conditions, others may be sacked. Whatever the reason, they must search for new jobs which take time. For example, a first-time job seeker may lack the resources or efficiency for finding the company that has the job that is available and suitable for him or her. As a result this person does not take other work, temporarily holding out for the better-paying job. Another example of when frictional employment occurs is when a company abstains from hiring because it believes there are not enough qualified individuals available for the job, when in actuality there is. Structural adjustments can also cause unemployment. When the pattern of demand for goods changes, the pattern of the demand for labor changes. Until labor adjusts fully, structural unemployment develops. Such unemployment may be defined as unemployment caused by a mismatch between the structure of the labor force in terms of skills, occupations, industries or geographical locations and the structure of the demand for labor. The proliferation of madrassa education in Pakistan has contributed to labor market mismatches, creating structural unemployment. For example a wheat farmer, whose income has plummeted because of a new trade agreement, quits farming and starts looking for a new job suffered structural unemployment. Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level, causing the number of job-seekers to exceed the number of vacancies. Many economists have argued that unemployment increases the more the government intervenes into the economy to try to improve the conditions of those without jobs. For example, minimum wage laws raise the cost of laborers with few skills to above the market equilibrium, resulting in people who wish to work at the going rate but cannot as wage enforced is greater than their value as workers becoming unemployed. Laws restricting layoffs made businesses less likely to hire in the first place, as hiring becomes more risky, leaving many young people unemployed and unable to find work. Seasonal employment refers to a situation where a number of persons are not able to find jobs during some months of the year. For example agriculture is a seasonal activity. There is an increased demand for labor at the time of sowing, harvesting, weeding and threshing. In between there is little or no demand for labor. Agricultural labor finds he is unemployed during this period. This is called seasonal unemployment.
WHAT IS LABOR MARKET?
Labor market is defined as the informal mechanism where the demand and supply of labor interact. A labor market could be a city, region or any other geographical area. Demand for labor is determined by the demand for a firms product, export demand and government policy. For example, an increase in the demand for construction workers because of a major construction project will result in an increase in demand for workers in other sectors, such as those that supply building materials, transportation, hospitality and retail. The supply of labor includes all those who are either working or looking for work, that is all those who are participating in the labor force. The labor market can experience both shortages and surpluses. A wide range of information must be collected and analyzed to describe important features of the labor market. Labor Market Information (LMI) is material and data about the supply and demand for labor within a certain labor market.
LABOR MARKET AND UNEMPLOYMENT IN PAKISTAN
Pakistan has one of the largest labor resources in the world due to its high population. Pakistan is the world’s sixth most populous country with an estimated population of 169.9 million. Pakistan’s annual population growth rate is 2.05% and it is estimated that Pakistan will become the fourth largest in terms of population by 2050. The labor force is estimated at 53.72 million. Of the total labor force, 50.79 million are employed while 2.93 million persons are unemployed, resulting in an unemployment rate of 5.5 percent.
If we see the unemployment scenario in the past, then compared to historical trend of 3 percent, unemployment levels remained around 6 percent post‐ 1993‐1999, but in FY05 a sharp increase of 8.3 percent was seen. The rate fell during 2006‐07. However, reaching a high point of 14 percent in 2009‐10. It fell to 5.6 percent in 2011. The bulk of research on labor market conditions in Pakistan has concentrated on the economic activity rate, the number of employed persons or the unemployment rate at a particular point in time. These stock measures of labor market situation are useful from a policy viewpoint as they give a broad indication of the dimension of the problem. Labor market is considered as the main route for establishing the link between macro policies, the resulting GDP growth and poverty alleviation.
LABOR POLICY IN PAKISTAN
Social and economic well-being of the people is one of the principal objectives of the present people’s government. Labor Policy, like policies in other fields, should also aim in attaining the objectives in a manner best suited to the resources of the country and the present state of economy. There is an urgent need to revitalize the economy, required sustained efforts, to increase the level of productivity, promotion of investment and maximization of employment. There is an equally genuine requirement to create among workers and employers, a better awareness of their obligations to the national objectives stated above. At the same time, the Government recognizes that workers and employers must enjoy reasonable benefits as can be sustained by the economy without suffering set-backs. Keeping these priorities in view, the Government considers that a balanced labor policy should be based on the following objectives:- - Workers’ right to form unions and unions should be protected and an institutional framework be made available to foster close cooperation between workers and employers at establishment level. - Equitable adjustment of rights between workers and employers should be ensured in an atmosphere of harmony, mutually beneficial to the workers and the management. - Consultations between workers and employers on matters of interest to the establishment and welfare of workers should be made more effective. - Adequate security of jobs should be available to the workers and there should be expeditious redresses of their grievances. - Conditions should be created that workers and employers are committed in enhancing the labor productivity. - Promotion to higher jobs be ensured at all levels based on suitability and merit and for this purpose arrangements should be made for in service training facilities. - Facilities for proper matching of job opportunities and the job seekers are strengthened and standard procedures be streamlined. - Social insurance schemes to be further strengthened.
- Just and humane conditions of work are guaranteed to all workers. - Forced labor in all its forms to be eliminated.
- Provisions relating to the employment of children to be strictly adhered to and be enforced.
LABOR MARKET CHALLENGES FACED BY PAKISTAN
The shares of wages and salaried workers, own-account workers and contributing family workers in Pakistan account for around one-third of employment, estimates a new report on global employment. Pakistan continues to address a range of complex challenges including political and macroeconomic instability and the impact of the devastating floods for job creation. Employment situation in Pakistan remains weak as the sluggish growth rate over the past few years has had a negative impact on employment. Long-standing structural problems such as weak policy implementation, security concerns and low investment in physical and human capital constrain growth. However, economic conditions are expected to improve slightly in 2012, but growth will remain well below potential. Unemployment is not the main labor market challenge in Pakistan. Main labor market challenges in Pakistan are twofold and consist of achieving the twin goals of increasing labor productivity, to ensure that incomes were rising and poverty was falling, and creating enough jobs for a growing working-age population. Reflecting the high share of employment in agriculture, working poverty persists at very high level. The situation in the labor market is serious on yet another account. The working conditions of are not satisfactory, rather they are deplorable. Long working hours and poor working conditions are the normal features of a significant number of work places. A number of them also carry occupational safety and health hazards. The situation is compounded further by observing denial of basic rights to a large number of workers. The internal hostilities and mistrust of trade unions is also a great challenge faced by the labor market. It has greatly weakened the labor movement in Pakistan. Despite 50 years of their existence and the related work, the trade unions have miserably failed to respond effectively and collectively to the challenges confronting them and the society. The labor market situation is also being affected by the existence of child labor. Children, at times as small as being 4 to 6 years of age, are found working in numerous work places, a number of their activities carry considerable occupational and health hazards. And this is besides the fact that these children are denied their very fundamental right of the “childhood” Pakistan’s population fails to follow the labor market laws enforced by the government. The Constitution of Pakistan contains a range of provisions with regards to labor rights found in Part II: Fundamental Rights and Principles of Policy. Article 11 of the Constitution prohibits all forms of slavery, forced labor and child labor Article 17 provides for a fundamental right to exercise the freedom of association and the right to form unions Article 18 proscribes the right of its citizens to enter upon any lawful profession or occupation and to conduct any lawful trade or business Article 25 lays down the right to equality before the law and prohibition of discrimination on the grounds of sex alone Article 37(e) makes provision for securing just and humane conditions of work, ensuring that children and women are not employed in vocations unsuited to their age or sex, and for maternity benefits for women in employment.
CAUSES OF UNEMPLOYMENT IN PAKISTAN
I conducted a small survey on unemployment. One of the questions asked in the survey was ‘What is the major cause of unemployment in Pakistan?’ Most people said that lack of education and high population are the major cause of unemployment in Pakistan. Unemployment is one of the major problems of Pakistan. The level of unemployment is moving up. Here are some of the causes that increase the unemployment rate in Pakistan. The rate of expansion in industrial sector is very slow so the increasing labor force is not fully absorbed. Increasing output of general education institutions is the major cause of educated young men’s unemployment. Technical, professional and vocational institutions are limited in number. Privatization of industrial units very badly affected the investment industrial sector. The private investors shift their capital to other/there countries. Hence employment in the private sector absolutely stopped for many years. The higher growth rate of population is the major causes of unemployment. The population has exceeded the optimum level. The resources of the country are limited. People of higher age, after getting retirement are ready to provide their services at some other places at lower wages which blocks the employment of educated young men. Reemployment of civil and military high ranking offices in government corporations and agencies deprives the qualified men from employment. Bad law and order situation has slowed down the tempo of economic activity. Investors are reluctant to make big investments because of continuous unrest and violence in the country. The attitude of youth towards the choice of a career is also unrealistic and unproductive. They want to get only some white-collar jobs. Whenever there is a boom for a particular field, huge number of people start studying about that and in the end we see thousands of candidates against 5 to 10 job vacancies EFFECTS OF UNEMPLOYMENT IN PAKISTAN
One of the questions I asked in my survey was ‘What is the major disadvantage of unemployment’. All the people choose the option crime. Pakistani people see or hear about thefts, murders etc every day. People forced by unemployment seek crime as the only solution. Any polity having unemployment faces adverse economic and social implications. Being a central problem unemployment wastes resources, reduces income thus increasing distress and depression in the polity. Unfortunately Pakistan is one of those developing countries that have offered its people less employment opportunities. Unemployment affects not just the person himself but also his/her family and in the long run the society where he lives. Unemployment brings with it despair, unhappiness and anguish. It forces people to live their lives in a way they do not wish to – The life expectancy is negatively affected. Here are the main aspects: Mental health: Mental health problems like low self-confidence, feeling unworthy, depression and hopelessness. With the lost income and the frustration involved in it, the recently unemployed may develop negative attitudes toward common things in life and may feel that all sense of purpose is lost. Frequent emotions could be low self-esteem, inadequateness and feeling dejected and hopeless. Health diseases: Unemployment increases overall tension and can increase dramatically general health issues of individuals. Increased Divorce Rate: Quarrels and arguments at home due to tension may lead to increased numbers of divorce etc. Political issues: Loss of trust in administration and the government which may lead to political instability Insecurity amongst employees: The prevailing unemployment and the plight of the unemployed people and their families may create fear and insecurity even in the currently employed people. Crime and violence: Increase in the rate of crime. As we can see Pakistan faces hundreds of cases of thefts and violence today, due to unemployment. Suicide cases: Increase in the rate of suicide attempts and actual suicides as well. Social gatherings: Unemployment may bring a decrease in social outings and interactions with other people, including friends. Stigma: Unemployment brings more than just ‘no work’. It brings with it the disgrace that the person has to bear. Nobody likes to be termed as unemployed. Standard of living: General standard of living of people reduces when unemployment is on a rise. Employment gaps: To further complicate the situation the longer the individual is out of job the more difficult it becomes to find one. Employers find employment gaps as a negative aspect. No one wants to hire a person who has been out of work for some time even when there’s no fault of the individual per say. Loss of skills’ usage: The unemployed is not able to put his/her skills to use. And in a situation where it goes on for too long the person may lose some of his/her skills. Unemployment financial costs: The government and the nation suffer. In many countries the government has to pay the unemployed some benefits. The greater the number of the unemployed or the longer they are without work the more money the government has to shell out. Therefore, the nation not only has to deal with the lost income and decreased production but also with additional cost. Though, this is not true for Pakistan as there are no unemployment benefits rewarded to the unemployed. Spending power: The spending power of an unemployed person and his/her family decreases drastically and they would rather save than spend their money, which in turn affects the economy adversely. Reduced spending power of the employed: Increased taxes and the insecurity about their own work may affect the spending power of the working people as well and they too may start to spend less than before thus affecting the economy and also the society in a negative manner. Recession: With the increase rates of unemployment other economy factors are significantly affected, such as the income per person, health costs, quality of health-care, standard of leaving and poverty.
Govt. should make efforts to push economic growth process. For this purpose Economic Revival Package should announce for the revival of industries sector, to stimulate production and investment. Govt. should seriously try to boost exports through broadening the tax base and lowering tariffs. Govt. should announce a package for the development of agriculture sector. Beside this a number of fiscal and monetary measures should take to attract industrialists and particularly foreign investment. More Technical and Vocational training facilities should be provided. In this way unemployed people will get the chance to enhance their skills and become able to earn reasonable income. With a view to reduce unemployment; self-employment scheme should be encouraged in true manners. At an individual level, the solution to unemployment may be as simple as getting a job, or getting more training. Societies try a number of different measures to get as many people as possible into work.
HOW UNEMPLOYMENT CAN BE REDUCED
Unemployment in an economy is one of the economic indicators that are used to determine the overall condition of the economy. Governments keep unemployment rate in check with regular measurements and adopt various means to reduce various types of unemployment present in an economy. As a rule-of-thumb, when unemployment rate reaches a threshold of 6-7% mark the governments usually step-in to control unemployment rate from raising further and implement measures for its reduction. As a fundamental tool of Macro-Economics, Fiscal and Monetary policies play a vital and basic role in keeping general levels of unemployment rate in the economy to lower levels. Monetary Policy
Governments provide economic stimuli with various measures through monetary policy. With monetary policy, governments can generate demand in the economy by lowering interest rates. With lower interest rates, people can borrow cheaply and buy various goods they may want to get; such as Cars, Mobile Phones, Computing devices, Residential Houses etc. Also it would let business to borrow at cheaper rates and hence look for production capacity enhancements and further investment in capital infrastructure that would create enough motion in the economic cycle of demand and supply to help reducing and keeping the unemployment rate in control. Fiscal Policy
Unlike monetary policy which has quicker results in terms of borrowing capability increment, fiscal policy usually has a longer span of period for having its effects being realized. Fiscal policy provides a fundamental basis for Government’s strategic direction in terms of its efforts and commitment towards reducing unemployment. With Fiscal policy, governments are actually balancing out their sources of income and expenditure channels in a manner that will ultimately impact the supply and demand in economy to stimulate the demand of labor in the economy. Government can reduce its income by cutting down tax rates and enabling further savings by individuals and corporations that would result in more disposable income to increase demand of goods. A wider benefit can be attained by reducing tax rates for those earning less than average income levels hence providing a wider benefit in terms of more disposable income in the economy. Simultaneously government can also get engaged into Capital (infrastructure development) and Revenue (educational and training programs) that can create more jobs into the economy. For more specific types of unemployment in the economy, different measures can be adopted to tackle these specific issues: Frictional Unemployment
A targeted approach for reducing frictional unemployment levels in the economy is by reducing unemployment benefits and allowance to motivate unemployed work force to actively seek opportunities for employment. Government and private organizations can facilitate in better job search by facilitating unemployed work force to come in contact with prospective employers. This can be achieved by better promoting job market and opportunities for job seekers. With internet and emails, recent boom of social media and professional hiring websites has given rise to candidates and prospective employers finding a better match to their expectations and requirements to match their respective needs. Structural Unemployment
Structural unemployment is generally overcome by the direct involvement of governments in active labor markets and taking actions to bring together the unemployed in the economy with the available jobs in the market. Governments provide incentives in terms of grants and subsidies to motivate firms towards further employment levels. Governments and firms can invest in training and development programs from schooling to higher-education in specialized fields along with vocational training for unskilled labor force that up skill itself and utilize employment opportunities that come their way. Also retraining activities should be initiated for unemployed workforce that have been made redundant due to changes in working environments and adoption of more advanced technology in the sector to which they belonged previously. Government can also introduce mobility benefits for new developments and projects in less developed areas or places where employment prospects have been developed, like industrial zones; however it may not be effective where culturally people have stronger sense of family and social relations. Cyclical Unemployment
Since Cyclical unemployment is directly related to the business cycle of the economy, governments usually get involved with basic monetary policy tools that enable demand increasing stimuli in the economy to overcome the downturn in business cycle and hence reduce the cyclical unemployment level in the economy. Increased government expenditure in construction and development can have a direct impact on reducing cyclical unemployment rate in the economy. Classical Unemployment
Policies to tackle such unemployment can vary from being tolerant to inflexible by the government. Arrangements with Labor unions and employee working groups can help in managing this kind of inflation from the economy. Although the results may be the same for a large group of people, it may not be popular since it considers a pool of workers with same considerations without any additional concern.
Unemployment is a major problem of our time. We have been able to understand that from the above information. The bad news is that reducing unemployment is likely to take many years. The good news is that persistence does not mean permanence. Normal economic change and new economic policies can make progress against persistence which need not be accepted as inevitable.
SURVEY ON UNEMPLOYMENT
1. What is your age?
a) Below 12 b) 12 to 25
c) 25 to 40
d) Above 40
2. What is the major cause of unemployment in Pakistan?
a) Lack of job opportunities
b) Lack of education
c) High population
3. What is the major disadvantage of unemployment?
a) Lost output
b) Health issues
4. Are all educated people finding jobs easily?
5. In your opinion what should be the minimum wage set by the government a) Below 5000
d) Above 10000