1. “UNEMPLOYMENT AFFECTS
ON INDIAN ECONOMIC
DEVELOPMENT ”
AND
“SUGGESTION FOR ITS
IMPORTANCE

2. CONTENTS
 What is unemployment?
 TYPES OF UNEMPLOYMENT
 CAUSES OF UNEMPLOYMENT
 COST OF UNEMPLOYMENT
 MEASUREMENT
 SOLUTIONS

3. DEFINITION
“Unemployment refers to a situation in which the workers
who are capable of working and willing to work do not get
employment.”

4. THE LABOUR MARKET
Slopes upwards because as wages
increase workers will be willing to
work
Slopes downwards because as wages
decrease firms will be demand more

5. CAUSES OF UNEMPLOYMENT –
DISEQUILIBRIUM UNEMPLOYMENT
Unemployment is Q2-Q1 or a-b
“”At the higher wage more
people are willing and able to
supply themselves to the
labour market but less firms
are willing and able to demand
– there is surplus of labour
(unemployment)“”

6. SOLUTIONS TO REAL
WAGE UNEMPLOYMENT
By making changes to legislation government could
reduce the power of trade unions
If the minimum wage is preventing the market from
clearing then it should be reduced
Evaluation
 It is difficult to reduce union power
 This may harm the poorest workers
 High income workers don’t receive the minimum
wage
 Reducing the living standards of low income
workers – inequitable (unfair)

7. DEMAND DEFICIENT OR
C YC L I C A L U N E M P LOY M E N T

8. S O LU T I O N S TO D E M A N D
D E F I C I E N T U N E M P LOY M E N T
This is caused by low AD
Need to increase AD
Any policy that increases AD should solve the
problem (Keynesian demand management policies)
 Monetary policy – reduce interest rates or
increase money supply
 Fiscal policy – Government spends more or
reduces income tax or indirect taxation
Evaluation
 All of these things take time
 Unemployment is a lagging indicator

9. TYPES OF
UNEMPLOYMENT
 Frictional unemployment
 Seasonal unemployment
 Structural unemployment

10. FRICTIONAL
UNEMPLOYMENT
 This is when people are between jobs or they have left
education and are waiting for their first job
 It is not normally seen as a serious problem
 Solutions
 Unemployment benefits should not be at a
level that removes the incentive to work
 Improve awareness of available jobs

11. SEASONAL
UNEMPLOYMENT
Demand for certain workers falls at certain times
of the year
Examples
Tourism industry
Farming
Solutions?
Encourage people to take different jobs in
their off season
Reduce unemployment benefits
Greater flow of information

12. STRUCTURAL
UNEMPLOYMENT
This is the worst type of equilibrium unemployment
It happens due to the changing structure of an economy
One reason why it is so harmful is that it tends to result in long term
unemployment
Different causes
 New technologies replace humans
 Demand for a particular type of labour - lower cost labour
in other countries
 Changes in consumer tastes –
e.g. environmentally Structural unemployment occurs
friendly types of energy when there is a permanent fall in
demand for a particular type of
labour e.g. coal mining

13. SOLUTIONS –”STRUCTURAL
UNEMPLOYMENT”
interventionist policies
The key is to increase occupational mobility (allow workers to
move from job to job)
 An education system that trains people to be more
occupationally flexible
 Adult retraining programmes
 Government gives subsidies to firms that provide training
for workers
 Enhance geographic mobility by building affordable
housing or give subsidies/tax breaks
 Set up apprenticeship programmes to allow people to
gain skills
Disadvantages
 Involve a high opportunity cost
 These policies are only effective in the long term

14. SOLUTIONS – STRUCTURAL
UNEMPLOYMENT
interventionist policies
The key is to increase occupational mobility (allow workers to
move from job to job)
 An education system that trains people to be more
occupationally flexible
 Adult retraining programmes
 Government gives subsidies to firms that provide training
for workers
 Enhance geographic mobility by building affordable
housing or give subsidies/tax breaks
 Set up apprenticeship programmes to allow people to gain
skills
Disadvantages
 Involve a high opportunity cost
 These policies are only effective in the long term

15. A R E D E M A N D - S I D E P O L I C I E S O R S U P P LY
SIDE POLICIES MORE EFFECTIVE IN
REDUCING
U N E M P L OY M E N T ?
If it is demand deficient then demand side policies will be required
Create demand and firms will demand more labour
Evaluation - There are concerns with using these
policies
Expansionary fiscal policy - means spending more or
taxing less
Either may mean running a budget deficit (spending
more than taking in from revenues)
This may not be a problem in the short run but could
be in the longer run

16. ARE DEMAND-SIDE POLICIES OR
S U P P LY S I D E P O L I C I E S M O R E
EFFECTIVE IN REDUCING
U N E M P L OY M E N T ?
Even if the reduction in taxes worked there would be a lag before it
came into effect
By the time it worked the economy could have recovered and the
extra AD would be inflationary
With structural unemployment supply side policies may be better
such as making sure labour is suitably skilled and flexible
In practice it is difficult to distinguish between different types of
unemployment
The economy will likely be suffering from different types at the same
time
Governments are likely to need a combination of both

17. PRESENTED BY

18. MADE BY