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3.2 Unemployment

(A) Types of Unemployment: After the Great Depression (1929-33), two major economic problems that world economies have been facing are Unemployment and Inflation. Therefore the public authority of any nation today has the primary responsibility of minimizing the level of unemployment and aiming for the full employment condition. An equally important task of the public authority is to contain inflation.

There are various types or sources of unemployment. These are the contributory causes of unemployment conditions. The main types of unemployment are:

i) Frictional Unemployment: Whenever there are frictions or some maladjustment in economic and productive activities, a part of the labor force is likely to be rendered unemployed. The frictions are caused because of a variety of factors. These include changes in the technical conditions of work, shift in the site of an industrial unit, market imperfections and want of adequate information, failure of adjustments in the supply and demand conditions etc. Normally, frictional unemployment is partial and temporary. It is partial in the sense only a part of the labor force in certain sections of the economy is rendered unemployed. Again it is temporary in the sense once the frictional forces are located and corrected the level of employment can be restored.

ii) Structural Unemployment: Whenever an economy undergoes basic structural changes there is the possibility of some part of the labor force being thrown out of employment. The long term process of economic development and growth gives rise to variety of structural changes. Considerable changes in productive activity from traditional agriculture to modern industry; transformation of rural sectors into urban units; replacement of small scale and cottage industries by large scale manufacturing units; introduction of electricity or other sources of commercial energy in place of manual and animal power are some examples of structural changes. The economy under the process of structural changes is in the condition of transition. Some workers are likely to become jobless during the process of transition. Moreover, the duration of such unemployment may also be fairly long depending upon the extent of corrective and restorative measures introduced to restrict the period of unemployment.

iii) Voluntary Unemployment: Unemployment is usually defined as a condition under which able bodied members of the working age (about 18 to 60 years) -- do not find it possible to get absorbed at the current market wage rate. But there may be some members of the society who do not satisfy all these conditions and hence remain unemployed. Even when jobs are available at current market wage rate, some may not be willing to work: they may not like the nature of the job or find the rate of wages offered to be inadequate, or they simply prefer leisure to work. In all such cases the members are said to be voluntarily unemployed. Such voluntarily unemployed individuals do not cause any problem to the public authorities. Their size in proportion to the total labor force is likely to be negligible.

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3. 1 Macro Aggregates
3.2 Unemployment
3.3 Inflation

Chapter 4

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