understanding of unemployment and poverty.

2. 2 MAJOR PROBLEMS OF MACROECONOMICS
• UNEMPLOYMENT
• POVERTY

3. UNEMPLOYMENT
MEANING :
• Unemployment is the most worrisome problem
in the field of macroeconomics.
• Unemployment is doubly bad leading to loss of
income/output and feeling of desperation.
• It is the fact of the life in the present world and
is worst example of both market and
government failure.
• Opposite to it, employment is must for a person
to have some source of income for livelihood.

4. • There is not only a pocket of unemployed
people but there is also a great degree of
unemployment of capital resources ass well.
• Unemployment is often equated to that of
human beings only, and this is the major
concern of unemployment.
• It could be defined both In physical(Up) as well
as in economic (Ue = U).
Up = population – employed people
U = work force – employed people
Where,
Workforce = population – people not in workforce

5. • People not in work force include children in the
pre-school age group, full time students in
schools/college, chronically sick people and
retired persons.
• Work participation rate(equal workforce as
proportion of population).

6. UNEMPLOYMENT RATE
• The unemployment rate measures the
percentage of employable people in a country’s
workforce who are over the age of 16 and who
have either lost their job or have unsuccessfully
sought jobs in the last month and are still
actively seeking work.
• Unemployment rate= number of employed/ total
labor force
• Note: If more people decide to go for a higher
education, ceteris paribus, both the workforce
as well as the number of people employed falls
by that number and since the unemployment
rate is always positive , the unemployment rate
goes up.

7. • There is a unique unemployment rate , called
the NATURAL RATE of UNEMPLOYMENT(Un)
which is also known as Non- Accelerating
Inflation Rate of Unemployment(NAIRU).
• This is a very relevant concept from the point of
stabilization policies.

8. EXAMPLE:
In the us, the Bureau of Labor Statistics reports the
unemployment rate in its EMPLOYMENT SITUATION report,
which is released on the 1st Friday of each month at 8:30 AM.
The report discloses the current unemployment rate , the
change in the unemployment rate, and a variety of other
labor statistics. The data in the report is generated by
surveys taken from almost every major industry in over 250
metropolitan areas. The Bureau conducts two surveys:
1. The household survey, which interviews 60,000
households
2. The establishment survey, which reviews data from
160,000 businesses and agencies.
It is important to distinguish between the percentage of
people who are unemployed and those who are simply not
working. Some people may be in school full time, working,
etc. These people are not considered part of labor force and
are so not included in the unemployment rate. Only those

9. TYPES OF UNEMPLOYMENT
1. Voluntary unemployment
2. Involuntary unemployment
3. Open unemployment
• Frictional unemployment
• Cyclical unemployment
• Structural unemployment
4. Hidden unemployment
• Disguised unemployment
• Seasonal unemployment
• underemployment

10. VOLUNTARY & INVOLUNTARY UNEMPLOYMENT
V O L U N TA RY
• Willful
unemployment
• Laziness,
obsession with
wealth
• No serious
economic problem
• May seek job but if
not found then
pretend to be
voluntarily
unemployed to be
safe from
embarrassment.
I N V O L U N TA RY
• Forced
unemployment
• Willing to work,
looking for job but do
not find
• Caused by paucity of
employment
opportunities so may
be economic issue.
• Wants job of
particular kind, on
particular terms, and
at a particular place
and till they find
pretend to be
involuntarily
unemployed.

11. QUESTION FOR DEBATE
Consider an MBA from a fairly
prestigious institution and assume that
she receives just an offer which carries a
salary of Rs. 8000 per month and the job
is in the costly city. If this person
declines the offer, is she voluntarily or
involuntarily unemployed?????????

12. OPEN UNEMPLOYMENT:
FRICTIONAL OR TURNOVER UNEMPLOYMENT
• Exists when a lack of information prevents
workers and employers from becoming aware
of each other.
• It is usually a side effect of the search process
and may increase when unemployment benefits
are attractive.
• It is the time period between jobs when a
worker is searching for or transitioning from
one job to another. So it is called search
unemployment.
• It arises in between 2 jobs, the 1st which a
person has quit in order to find the 2nd.
• Temporary and prevalent in developed
countries.

13. CYCLICAL UNEMPLOYMENT
• It is the result of the cyclical nature of the
economy and occurs whenever there is a
general downturn in business activity.
• Caused: by business cycles and economic
fluctuations
• Example: during droughts and floods farmers
may be left unemployed and during strikes
industrialists and workers may remain
unemployed.
• When the economy slows down due to any
such events, calamities or general recession
people lose their purchasing power, which
reduces sales, and thereby production and
employment.

14. STRUCTURAL UNEMPLOYMENT
• It occurs when changing markets or new
technologies make the skills of certain workers
obsolete.
• It is the longer term form of frictional
unemployment.
• Caused by the mismatch of vacancies and skills
of unemployed people.
• Mismatch of location of unemployed also cause
structural unemployment.
• With the booming of information technology in
production of goods and services and the
changing structure of economies away from
primary sector and towards secondary and
tertiary sectors, traditional jobs are

15. HIDDEN UNEMPLOYMENT:
DISGUISED UNEMPLOYMENT
• Arise when several people share a particular
work at a given time and when such work is
spread over time.
• Example: in retail business in India, many
fathers look after their respective businesses
during early morning hours, late evenings and
holidays and the sons run the business during
the peak hours.
• Some occupations are seasonal.
• Example: farmers are occupied a lot during the
Kharif
( june – oct) and Rabi ( december – march)
seasons and have a little work during off times.
Unless these farmers diversify and take p some

16. UNDEREMPLOYMENT
• It is the situation where the work available is for
lesser than the full employment hours or for
periods lesser than the full working days in a
given period.
• Part time workers in industries and services
and full time workers in agriculture suffer from
this problem.
• Such unemployment is rampant in developing
countries and among females and other racially
discriminated people.

17. MEASUREMENT OF UNEMPLOYEMENT
Criteria for unemployment:
• Willingness
• Time
• Income
• Productivity
Norms to overcome certain problems:
• Priority rule
• Three reference periods

18. POVERTY

19. • Poverty is a multidimensional problem that
goes beyond economics to include among
other things, social, political and cultural
issues.
• Therefore solutions to poverty cannot be based
exclusively on economic policies, but require a
comprehensive set of well- coordinated
measures.
• Because economic growth is the single most
important factor influencing poverty and
macroeconomic stability is essential for high
and sustainable rates of growth. Hence
macroeconomic stability should be a key
component of any poverty reduction strategy.

20. • Poverty is defined based on data of
international standards that is US $1/day/per
person and US $2/day/person.
• Lately , poverty definition is changed to
US$4/day/person.
• The world’s poorest live in Africa and the
progress in its reduction is also the slowest
there.
• In India, the subject of defining poverty was first
posed at the Indian labour conference in 1957.
• The working group of planning commission
recommended Rs. 25 per person per month for
urban and Rs. 18 per person per month for rural
areas.

21. The united states government created the poverty
line in 1960s.
• It is defined as the amount of income necessary
to buy basic necessites.
• Measurement of poverty is done by HEAD
COUNT RATIO. This measure ignores the size of
the poverty gap as well as the relative inequality
among the poor.
• To incorporate these factors new measure are:
• Poverty gap
• Squared poverty gap
• Sen index

22. • The poverty gap is defined as the mean shortfall
from the poverty line expressed as a percent of
the poverty line.
• The squared poverty gap incorporates a
squared coefficient of variation of the relative
inequality.
• Sen index uses the Gini coefficient among the
poor population.
• HEAD COUNT ELASTICITY denotes the
responsiveness of the head count poverty
measure to the growth rate in the economy. It is
expected to be negative and its estimate for
india is -1.3 and for developing countries is -2.

24. TYPES OF POVERTY:
• Absolute Poverty
• Relative Poverty

25. ABSOLUTE POVERTY:
• It is the lack of one or more basic needs over a long
period of time that it endangers a person’s life or can
cause harm.
• It is also known as extreme poverty and it refers to a
poverty line . It is defined as the amount of income one
needs to satisfy the most basic needs.
• Example: urban residence of capital cities will have
greater education, energy and transportation cost other
than populations else where.

26. RELATIVE POVERTY:
• It is defined as a measure of inequality in the lower half of
income distribution
• It is used to measure wealth in relationships to other
members of a distinct population.
• Example: organizations such as world bank may adjust
the poverty level over time such adjustments rely on the
world wide cost of accessing the goods and services
necessary for survival.

27. SUBMITTED TO:
PROF. TEJAL SHAH
SUBMITTED BY:
JAAN PATEL
HIRAN PATEL
JYOTI PATEL
DIXITA PATEL