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UNEMPLOYMENT (Types (Structural UnN
usually LT
Due to mismatch of…
UNEMPLOYMENT
Definition and Measurements
- People who are part of lbr force, currently without a job and actively looking for one
Labour Force
- Economically inactive people are excluded from the lbr force
- Economically inactive = without a job, and not actively looking for one
- e.g. institutionalised people, students, housewives, retirees, disabled, discouraged wkrs
- Anyone who is not actively looking for a job
Calculations
- UnN rate = (number of unemployed)/(labour force) x 100%
- Lbr force = No. of unN + No. of N
- Lbr Force Participation rate = (labour force)/(population aged 15 and above) x 100%
Limitations
- Difficult to distinguish those who are unN and those not in lbr force
- ie can't tell who is actively looking for job
- Discouraged wkrs not included in unN statistics; which understates true extent of unN, bc a fall in unN may be due to more ppl exiting lbr force
- Some are working part-time but wish to be working full time. These ppl are underemployed, and therefore unN statistics are understated
- UnderN = wkr's skill lvl is higher than nec for a job
- Ppl wking in underground econ.: drug dealing, prostitution, gambling is not reported
- Counted as unN hence overestimated
Types
Structural UnN
- usually LT
- Due to mismatch of skills between the unN and the skills required for jobs available
- ie Wkrs lack necessary skills for available jobs or have skills that are no longer in DD
- Mismatch arises because of:
- Structural decline in some industries
- Unable to compete in the face of changing DD and new pdts
- Due to emergence of more efficient compet.s in the mkt
- Industries change their pdn methods:
- Requires wkrs to have new/different skill requirements (e.g. increased use of robots)
- Bc pace of industrialisation > rate of accumulation of human capital
- results in a skills gap, where DD for new skills outpace SS of wkrs w those skills
- Hence wkrs become structurally unN bc they lack relevant skills to take on new jobs
Frictional UnN
- Due to imperfect info in lbr mkt
- At any time, ppl w/ mktable skills are fired, others voluntarily quit, others are young ppl who leave sch and find job
- But employers not fully aware of the type of lbr that is available, wkrs are not fully aware of the jobs that are available
- Wkrs have to search for right jobs, employers have to search for right wkrs, rather than taking up the 1st that comes along
- Search time to match job seekers w job openings creates frictional unN
- However usually ST so not that serious
Cyclical UnN
- due to fluctuations in business cycle (depends on GDP!)
- increases when real GDP falls, vice versa
Due to fall in AD or fall in SRAS
AD
- e.g. in recession: C and I falls bc people reduce their spending, firms put their expansion plans on hold
- AD falls, real GDP falls, firms cut pdn and employ fewer wkrs, cyclical unN
- a form of DD-deficient unN
SRAS
- Due to supply shocks (e.g. increase in oil Px)
- Increase oil px = increase COP = fall in SRAS (upwards shift of AS)
- Leads to recession, real GDP falls -----> unN
SG Context
- Rise of 3D printing in mfg sector
- Reduced time to mfg high value-added pdts
- Caused some wkrs in traditional mfg sector to be displaced
- but also job creation like big data architects and software devpers
Full Employment
- Does not mean 0% unN!
- Bc in a healthy econ, frictional and structural unN will always exist
- Bc ppl always in the midst of changing jobs, and also changes in level of tech will always alter the skills required for diff jobs
- Hence full N = no cyclical unN
- Implies that all available resources that are suited and can be used for pdn are fully
utilised
- to pdc the econ's potential level of op
- Illustrated by Yf on LRAS, or a pt on the PPC
Natural Rate of UnN
- Consists of only structural and frictional unN
- Actual rate of unN = Natural rate + Cyclical unN
- Natural rate changes w diff ctys, time , demographic and tech
Consequences
Consumers
- unN ppl lose Y and can enjoy fewer G&S hence lower SOL
- LT unN causes ppl to deplete savings
- Reduce C leads to fall in AD by reverse k, hence drop in NY and op for econ
- Lower SOL for ppl who keep their jobs too
- Prolonged unN causes loss of skills
- Skills of unN will dwindle as they are not in regular use and hence become obsolete
- Employers perceive LT unN to be less employable
Government
- Govt pay out more unN benefits, drains govt funds
- Opp costs as these funds could have been used for other purposes like infrastructure
- UnN wkrs do not contribute Y tax, and contribute less to indirect tax (GST) due to cut spending
- Govt budget position affected; amt of tax revenue collected < amt of govt expenditure
Economy
- UnN resources = not pdcing any op
- Actual op < potential op, econ. is operating inside PPC
- Goods that could have otherwise been pdced are not being pdced
- This loss of op cannot be recovered by econ
- Widening Y gap
- Those displaced from jobs are unable to take on new jobs, hence loss of Y
- Those with appropriate skills can take on new jobs, causing increase in Y
- Y from one grp is redistributed to another
- Social costs: dom violence and crime, poverty
Policies
Frictional
- By improving flow info betwn employers and job seekers
- Reduces time required to match suitable lbr with suitable jobs
- Job fairs, N agencies, online portals
- Provide an info. pool for both wkrs and Nyers so that qualified wkrs can be matched w existing jobs quickly
- Can also reduce unN benefits given out, which will make them more proactive in job seeking
SG:
- Workfare Income Supplement: top up Y of older, lower-skilled wkrs, to encourage them to hold down a regular job
Structural
- DD-mgmt not suitable
- Must help unNed take on new jobs more easily
- Training programmes to help wkrs pick up relevant skills
- Prevents wkrs skills from becoming obsolete when firms
upgrade their pdn processes or restructure
- This reduces occ. immobility and ensure that lbr resources can be allocated from one industry to another industry whr lbr resources are needed
Limitations
- But require substantial G funding and is a LT measure
- Success of training deps on attitude, aptitude of wkrs
- May also adopt protectionist measures to protect declining industries
- For low-skilled wkrs: they may not have the edu. attainment to undergo formal reeducation to switch into knowledge-based industries
SG
- Globn affects structural unN
- Bc it's easier for MNCs to lower costs by outsourcing and offshoring + tech advancements
- Cause many MNCs in mfg industry to relocate out of SG (only the mfg part move to e.g. China bc cheap lbr)
- Leave R&D aspects behind
- Only high skilled wkrs demanded
- Govt policies also increase structural unN
- e.g. those that encourage pdtivity-driven growth, encourage increased use of automation, hence displacing wkrs
- However govt has measures to mitigate this
- WTS and Skillsfuture credit scheme to train
Tackle Occupational and Geographical Immobility
- From N2015 Potash ans key
- Reduce geo. immobility by: directing unN wkrs to other states where lbr is scarce
- By providing housing grants/defray relocation costs
- Can relocate to areas where jobs are available
- Reduce occ. immobility by: /training as mentioned ->
- Longer term policy compared to ST DD mgment
Cyclical
- Usually due to recession
- Adopt policies to boost AD
- exp. FP/MP to raise NY, op and N
SG
- 2009 Financial crisis: Resilience Package
- Greater govt spending on infra, hiring civil servants
- MAS keeps SGD on neutral stance (instead of app) to increase X competitiveness
- Help to boost AD and NY
Diversification of Trade partners
- SG vulnerable to fluctuations in economies of trading partners
- Adverse effects on our ext DD will cause cyclical unN to rise
- e.g. weak X DD from key mkts like China, US, EU will lead to substantial fall in X and hence GDP (bc high % X)
- N in X-related industries affected
- Govt has hence begun to deepen trade ties w/ non-traditional economies e.g. Russia, Sri Lanka, East Africa
- Allows SG access to more X mkts, less vuln./dependent on key mkts, hence mitigate cyclical unN
Limitations
- Increasing AD is a blanket, broad-based approach
- Usually does not tackle root cause
- Hence may be ineffective in reducing unN arising from (whatever caused it)
- May also not guarantee an increase in N of humans, may be increase in usage of machines for capital-intensive industries
SG Nployment
- Two-track lbr mkt emerging: the jobless are finding it harder to find work while people with jobs are enjoying steady rise in Y
- Have been calls for govt to provide more social security or social safety nets
- Bc w/ greater globn, econ. restructuring and tech advancements, wkrs are inclined to remain unN bc always changing
- Providing job/Y security lets them be less averse to trying out diff jobs across diff industries
- SG faces mainly structural unN: older, lower-skilled wkrs are more vulnerable
Progressive Wage Model
- For low Y wkrs in cleaning, security, landscape sectors
- Wages in these sectors stagnate due to widespread cheap sourcing
- PWM maps out a clear career pathway for their wages to rise along w training and improvements in pditivity
- Structure a career ladder into low-wage industries; as wkrs climb the ladder, they earn more
- Made possible by:
- Workfare supplements for the wkr while they undergo training
- Govt's and employers' financial capacity to pay for training programmes
- Allows improvement in pdtivity along with wages