An Assignment

On
“Unemployment”
Course code: LCM-111

Submitted To:

Md. Mehedi Hasan

Associate Professor

Department of Language and communication

Faculty of Business Administration and Management

Patuakhali Science and Technology University

Dumki, Patuakhali-8602

Submitted By:

Jinnat Ara Nishi

ID: 1703076

REG:07717

Level:1, Semester:1

Faculty of Business Administration and Management

Date of Submission: 7th June, 2018

1
What Is Unemployment?

Unemployment is defined as a situation where someone of working age is not able to get a job
but would like to be in full-time employment. Unemployment occurs when a person who is
actively searching for employment is unable to find work. Unemployment is often used as a
measure of the health of the economy. The most frequent measure of unemployment is the
unemployment rate, which is the number of unemployed people divided by the number of people
in the labor force.

Before finding out about the different types of unemployment, it is necessary to understand how
unemployment is defined and measured by the Bureau of Labor Statistics (BLS). To count as
unemployed, out-of-work employees must have these three qualities:

1. They aren't working, even part-time or temporary.

2. They are available to work.

3. They actively looked for work in the past four weeks.

This last point is important and often controversial. If someone has stopped looking for work, the
BLS no longer counts them as being part of the labor force or as unemployed. But it does report
them separately under the category of "marginally attached to the labor force," so can get a sense
of what unemployment would be if they were counted. The labor force participation rate follows
the BLS’ definitions of the employed, unemployed, and the civilian population it is being
measured against.

Measurement methods:
In order to find the rate of unemployment, four methods are used:
 Labor Force Sample Surveys: provide the most comprehensive results. Calculates
unemployment by different categories such as race and gender. This method is the most
internationally comparable.
 Official Estimates: combines information from the three other methods. The method is
not the preferred method to use when calculating the rate of unemployment.
 Social Insurance Statistics: these statistics are calculated based on the number of
individuals receiving unemployment benefits. The method is criticized because
unemployment benefits can expire before an individual finds employment which makes
the calculations inaccurate.
 Employment Office Statistics: only include a monthly total of unemployed individuals
who enter unemployment offices. This method is the least effective for measuring
unemployment.

2
Measuring Unemployment:
The U.S. Bureau of Labor Statistics measures employment and unemployment for individuals
over the age of 16. The unemployment rate is measured using two different labor force surveys.
 The Current Population Survey (CPS): also known as the “household survey” the CPS is
conducted based on a sample of 60,000 households. The survey measures the
unemployment rate based on the ILO (International Labor Organization) definition.
 The Current Employment Statistics Survey (CES): also known as the “payroll survey” the
CES is conducted based on a sample of 160,000 businesses and government agencies that
represent 400,000 individual employees.
The unemployment rate is also calculated using weekly claims reports for unemployed
insurance. The government provides this data. The unemployment rate is updated on a monthly
basis.

Measurement Shortcomings:
The measurement of unemployment is not an absolute calculation and is prone to errors. For
example, the unemployment rate does not take into account individuals who are not actively
seeking employment, such as individuals attending college or even individuals who are in U.S.
prisons. Individuals who are self-employed, those who were forced to take early retirement,
those with disability pensions who would like to work, and those who work part-time and seek
full-time employment are not factored in to the unemployment rate. Some individuals also
choose not to enter the labor force and these statistics are also not considered. By not including
all underemployed or unemployed individuals in the measurement of the unemployment rate, the
calculation does not provide an accurate assessment of how unemployment truly impacts society.
Errors and biases are also present due to data assembly and reporting inconsistencies.

Classifications of unemployment:

1.Structural unemployment:

 Structural unemployment exists when shifts occur in the economy that creates a mismatch
between the skills workers have and the skills needed by employers. An example of this is an
industry’s replacement of machinery workers with robots. Workers now need to learn how to
manage the robots that replaced them. Those that don't learn need retraining for other jobs or
face long-term structural unemployment.A long recession often creates structural unemployment.
If workers stay unemployed for too long, their skills have likely become outdated. Unless they
are willing and able to take a lower-level, unskilled job, they may stay unemployed even when
the economy recovers. If this happens, structural unemployment leads to a higher rate of natural
unemployment. 

3
2.Frictional unemployment:

Frictional unemployment occurs when workers leave their old jobs but haven't yet found new
ones. Most of the time workers leave voluntarily, either because they need to move, or they've
saved up enough money to allow them to look for a better job. Frictional unemployment also
occurs when students are looking for that first job or when mothers are returning to the
workforce. It also happens when workers are fired or, in some cases, laid off due to business-
specific reasons, such as a plant closure. Frictional unemployment is short-term and a natural
part of the job search process. In fact, frictional unemployment is good for the economy, as it
allows workers to move to jobs where they can be more productive.

3. Cyclical unemployment:

Cyclical unemployment is not part of the natural unemployment rate. It's caused by
the contraction phase of the business cycle. That's when demand for goods and services fall
dramatically, forcing businesses to lay off large numbers of workers to cut costs. Cyclical
unemployment tends to create more unemployment. This is because the laid-off workers have
less money to buy the things they need, further lowering demand. Government intervention, in
the form of expansive monetary policy and even fiscal policy, is required to stop the downward
spiral. After the stock market crash of 1929, the government did not step in right away. This led
to the Great Depression, which lasted 10 years and led to a 25 percent unemployment rate.

4.Natural unemployment:

There will always be some level of unemployment, even in a healthy economy. The lowest level
of unemployment was 2.5 percent, right after the Korean War. This was an economic bubble that
soon led to a recession. The natural unemployment rate of 4.5 to 5 percent is a healthier
indicator. Natural unemployment consists of two of the three main types of unemployment:
frictional and structural.

5.Long-term unemployment 

Long-term unemployment occurs for those actively looking for a job for over 27 weeks. The

effects are devastating. Many employers overlook someone who's been looking for that long.
The emotional and financial costs can be very damaging.  Sadly, a higher percentage of the
unemployed fall into this category than before the financial crisis or in prior recessions.

6.Real Unemployment:

Real unemployment is not one of the types of unemployment, but it's a term need to understand.
Many people argue that instead of the “official” unemployment rate, we should use an alternate
rate calculated by the Bureau of Labor Statistics. This rate is called the “real” unemployment
rate, and it uses a broader definition of unemployment. For the real unemployment rate, the BLS
includes these three categories:

4
 1. Marginally attached are people who haven't looked for work in the past four weeks, but
have looked within the past year. This category also includes:

2. Discouraged workers are those who have given up looking for work.

3. Part-time workers who would like a full-time job.

Some people argue that the real unemployment rate during the 2008 recession was as high as the
25 percent rate during the Great Depression. But this is not true. The "real" U-6 rate reached 17.5
percent on October 2009, the height of unemployment in the great recession. 

7. Seasonal Unemployment

Some sources include seasonal unemployment as a fourth type of unemployment. It is part of

natural unemployment. Like its name says, seasonal unemployment results from regular changes
in the season. Workers affected by seasonal unemployment include resort workers, ski
instructors, and ice cream vendors. It could also include people who harvest crops. Construction
workers are laid off in the winter, in most parts of the country. School employees can also be
considered seasonal workers. The BLS does not measure seasonal unemployment. Instead, it
adjusts its unemployment estimates to rule out seasonal factors. This gives a more accurate
estimate of the unemployment rate.

8. Classical Unemployment

Classical unemployment is also known as “real wage unemployment” or “induced

unemployment.” It’s when wages are higher than the laws of supply and demand would normally
dictate. It occurs in one of these three situations

1. Unions negotiate higher salaries and benefits.

2. Long-term contracts set a wage that has become too high due to a recession.

3. The government sets a minimum wage that's too high.

The result is that companies must pay more per employee, so they can afford fewer employees.
Those that are laid off are victims of classical unemployment.

9. Underemployment

Underemployed workers have jobs, but they aren't working to their full capacity or skill level.
This includes those who are working part-time but would prefer full-time jobs and those who are
working in jobs where they aren't being utilized. Underemployment is often caused by cyclical
unemployment. During a recession, unemployed workers will take what they can to make ends
meet. Some definitions of underemployment include unemployment. Others include segments of
society that are not included in the standard definition of unemployment but are counted in the

5
real unemployment rate. Awareness of underemployment helps to understand the big picture of
unemployment.

Unemployment rate in Bangladesh:

Unemployment Rate in Bangladesh remained unchanged at 4.20 percent in 2017 from 4.20
percent in 2016. Unemployment Rate in Bangladesh averaged 3.85 percent from 1991 until
2017, reaching an all-time high of 5.10 percent in 1997 and a record low of 2.20 percent in
1991.In Bangladesh, the unemployment rate measures the number of people actively looking for
a job as a percentage of the labour force. This page provides - Bangladesh Unemployment Rate -
actual values, historical data, forecast, chart, statistics, economic calendar and news. Bangladesh
Unemployment Rate - actual data, historical chart and calendar of releases - was last updated on
October of 2018.

Bangladesh Labour Last Previous Highest Lowest Unit

Unemployment Rate 4.20 4.20 5.10 2.20 percent [+]

Employed Persons 60.80 59.50 60.80 39.00 Million [+]

Wages 13258.00 12897.00 13258.00 11493.00 BDT/Month [+]

6
Bangladesh Labour Last Previous Highest Lowest Unit

Population 161.80 159.90 161.80 50.10 Million [+]

Living Wage Family 11800.00 11800.00 11800.00 11800.00 BDT/Month [+]

Living Wage Individual 7360.00 7360.00 7360.00 7360.00 BDT/Month [+]

Minimum Wages 5300.00 5300.00 5300.00 5300.00 BDT/Month [+]

Retirement Age Men 59.00 59.00 59.00 57.00 [+]

Retirement Age Women 59.00 59.00 59.00 57.00 [+]

Wages High Skilled 8900.00 8900.00 8900.00 8900.00 BDT/Month [+]

Wages Low Skilled 4650.00 4650.00 4650.00 4650.00 BDT/Month [+]

Unemployed Persons 2.70 2.60 2.70 1.40 Million [+]

History of unemployment:
There are relatively limited historical records on unemployment because it has not always been
acknowledged or measured systematically. The recognition of the concept of "unemployment" is
best exemplified through the well documented historical records in England. For example, in
16th century England no distinction was made between vagrants and the jobless; both were
simply categorized as "sturdy beggars", to be punished and moved on. The closing of
the monasteries in the 1530s increased poverty, as the church had helped the
poor. The Elizabethan Poor Law of 1601, one of the world's first government-sponsored welfare
programs, made a clear distinction between those who were unable to work and those able-
bodied people who refused employment. By 1776 some 1,912 parish and corporation
workhouses had been established in England and Wales, housing almost 100,000 paupers.
Scarcity of labor was a factor in the economics of slavery in the United States.
As new territories were opened and Federal land sales conducted, land had to be cleared and new
homesteads established. Hundreds of thousands of immigrants annually came to the U.S. and
found jobs digging canals and building railroads. Almost all work during most of the 19th
century was done by hand or with horses, mules, or oxen, because there was very little
mechanization. The workweek during most of the 19th century was 60 hours. Unemployment at
times was between one and two percent.

7
However, 19th century was a time of high unemployment in all major industrialized nations. By
the spring of 1983, unemployment in the United Kingdom had risen by 6% in the previous 12
months; compared to 10% in Japan, 23% in the United States of America and 34% in West
Germany (seven years before reunification).
Unemployment in the United Kingdom remained above 3,000,000 until the spring of 1987, by
which time the economy was enjoying a boom. By the end of 1989, unemployment had fallen to
1,600,000. However, inflation had reached 7.8% and the following year it reached a nine-year
high of 9.5%; leading to increased interest rates.

21st century unemployment worldwide:

Into the 21st century, unemployment in the United Kingdom remained low and the economy
remaining strong, while at this time several other European economies—namely, France and
Germany (reunified a decade earlier)—experienced a minor recession and a substantial rise in
unemployment. The unemployment rate in the US declined to 3.7 percent in September of 2018
from 3.9 percent in each of the previous two months and below market expectations of 3.8
percent. It is the lowest jobless rate since December of 1969. The number of unemployed
persons decreased by 270,000 to 6.0 million. Over the year, the unemployment rate and the
number of unemployed persons declined by 0.5 percentage point and 795,000, respectively.

Among the major worker groups, the unemployment rates for adult women (3.3 percent) and
Whites (3.3 percent) declined in September. The jobless rates for adult men (3.4 percent),
teenagers (12.8 percent), Blacks (6.0 percent), Asians (3.5 percent), and Hispanics (4.5 percent)
showed little or no change over the month.

Strategies to reduce unemployment:

There are two main strategies for reducing unemployment –
1. Demand side policies to reduce demand-deficient unemployment (unemployment caused by
recession)
2. Supply side policies to reduce structural unemployment / (the natural rate of unemployment)
A quick list of policies to reduce unemployment:
 Monetary policy – cutting interest rates to boost Aggregate Demand (AD)
 Fiscal policy – cutting taxes to boost AD.
 Education and training to help reduce structural unemployment.
 Geographical subsidies to encourage firms to invest in depressed areas.
 Lower minimum wage to reduce real wage unemployment.
 More flexible labour markets, to make it easier to hire and fire workers.

8
1. Fiscal Policy
Fiscal policy can decrease unemployment by helping to increase aggregate demand and the rate
of economic growth. The government will need to pursue expansionary fiscal policy; this
involves cutting taxes and increasing government spending. Lower taxes increase disposable
income (e.g. VAT cut to 15% in 2008) and therefore help to increase consumption, leading to
higher aggregate demand (AD).

With an increase in AD, there will be an increase in Real GDP (as long as there is spare capacity
in the economy.) If firms produce more, there will be an increase in demand for workers and
therefore lower demand-deficient unemployment. Also, with higher aggregate demand and
strong economic growth, fewer firms will go bankrupt meaning fewer job losses.

2. Monetary policy
Monetary policy would involve cutting interest rates. Lower rates decrease the cost of borrowing
and encourage people to spend and invest. This increases AD and should also help to increase
GDP and reduce demand deficient unemployment.
Evaluation
 Similar problems to fiscal policy. e.g. it depends on other components of AD.
 Lower interest rates may not help boost spending if banks are still reluctant to lend.
 Demand side policies can contribute to reducing demand deficient unemployment e.g. in
a recession. However, they cannot reduce supply side unemployment. Therefore, their
effectiveness depends on the type of unemployment that occurs.
Supply side policies for reducing unemployment
Supply side policies deal with more micro-economic issues. They don’t aim to boost overall
aggregate demand but seek to overcome imperfections in the labor market and reduce
unemployment caused by supply side factors. Supply side unemployment includes:
 Frictional
 Structural
 Classical (real wage)

Policies to reduce supply side unemployment

1. Education and training. The aim is to give the long-term unemployed new skills which
enable them to find jobs in developing industries, e.g. retrain unemployed steel workers to have
basic I.T. skills which help them find work in the service sector. – However, despite providing
education and training schemes, the unemployed may be unable or unwilling to learn new skills.
At best it will take several years to reduce unemployment.
9
2. Reduce the power of trades unions. If unions can bargain for wages above the market
clearing level, they will cause real wage unemployment. In this case reducing the influence of
trades unions (or reducing Minimum wages) will help solve this real wage unemployment.
3. Employment subsidies. Firms could be given tax breaks or subsidies for taking on long-term
unemployed. This helps give them new confidence and on the job training. However, it will be
quite expensive, and it may encourage firms to just replace current workers with the long-term
unemployment to benefit from the tax breaks.
4. Improve labour market flexibility. It is argued that higher structural rates of unemployment
in Europe is due to restrictive labour markets which discourage firms from employing workers in
the first place. For example, abolishing maximum working weeks and making it easier to hire
and fire workers may encourage more job creation. However, increased labour market flexibility
could cause a rise in temporary employment and greater job insecurity.
5. Stricter benefit requirements. Governments could take a more pro-active role in making the
unemployed accept a job or risk losing benefits. After a certain period, the government could
guarantee a public sector job (e.g. cleaning streets). This could significantly reduce
unemployment. However, it may mean the government end up employing thousands of people in
unproductive tasks which is very expensive. Also, if you make it difficult to claim benefits, you
may reduce the claimant count, but not the International Labour force survey.
6. Improved geographical mobility. Often unemployed is more concentrated in certain regions.
To overcome this geographical unemployment, the government could give tax breaks to firms
who set up in depressed areas. Alternatively, they can provide financial assistance to
unemployed workers who move to areas with high employment. (e.g. help with renting in
London)

10