Está en la página 1de 40

The first published use of the term "macroeconomics" was by the Norwegian Econom ist Ragnar Frisch in 1933

and before this, there already was an effort to unders tand many of the broad elements of the field. Ragnar Frisch DEFINATION OF MACROECONOMICS: Macroeconomics is a branch of econom ics that deals with the performance, structure and behavior of a national or a r egional economy as a whole. Since the 1930s economists have split their economic s into two parts. Economics is divided into two main divisions Microeconomics Ma croeconomics MICROECONOMICS :

Microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets. Microeconomics focuses on the What?" and "For Whom?" questions . It examines how a society decides to produce the bundle of goods and services it does (the "what" question), and who gets these goods and services (the "for w hom" question). It explores how various systems of incentives and ways of making decisions (such as "dollar voting" or various forms of political voting) work t o solve the "what" and "for whom" questions. Central in much of this examination is the concept of economic efficiency. MACROECONOMICS:Macroeconomics deals with topics of inflation and unemployment. M acroeconomists study aggregated indicators such as GDP, unemployment rates and p rice indices to understand how the whole economy functions. Macroeconomists deve lop models that explain the relationship between such factors as national income , output, consumption, unemployment, inflation, savings, investments, internatio nal trade and international finance. Macroeconomics is a broad field of study, h owever, there are two major areas of research in Macroeconomics: The attempt to u nderstand the causes and consequences of shortrun fluctuations in national incom e (the business cycle). The attempt to understand the determinants of long-run ec onomic growth (increases in national income). Macroeconomic models and their for ecasts are used by both governments and large corporations to assist in the deve lopment and evaluation of economic policy and business strategy

DEFINATION: Unemployment is the state in which a person is without work, availab le to work, and is currently seeking work. It is a situation where there is nonavailability of job for the persons. Its is an situation in which a person who i s physically capable, mentally willing to work at existing wage rate does not fi nd any job and is forced to remain unemployed. INTRODUCTION:

It involves a waste of human resource and results in many social evils like thef t, pick- pocketing, robbery, murder etc. Its a serious economic, social and polit ical problem of the country. Its a cause as well as effect of poverty. The unempl oyment rate is used in economic studies. Rate is determined as the percentage of those in the labor force without jobs. There are a variety of different causes of unemployment, and disagreement on which causes are most important. Different schools of economic thought suggest different policies to address unemployment. Monetarists for example, believe that controlling inflation to facilitate growth and investment is more important, and will lead to increased employment in the long run. Keynesians on the other hand emphasize the smoothing out of business c ycles by manipulating aggregate demand. There is also disagreement on how exactl y to measure unemployment. For example, the conservative government, when in pow er in the United Kingdom, changed the way in which employment was measured sever al times. Each time, the figure reduced (Social Trends). Different countries exp erience different levels of unemployment; the USA currently experiences lower un employment levels than the European Union, and it also changes over time (e.g. t he Great depression) throughout economic cycles.

Unemployment rates in the United States (1950 2005)

VOLUNTARY UNEMPLOYMENT: There are some persons in a society who for various reas ons prefer to remain jobless even though there are possibilities of getting job; some have the desire to have jobs only of their liking or giving better remuner ation than that in the earlier jobs and therefore they prefer to remain unemploy ed. Such a kind of unemployment is referred to as VOLUNTARY UNEMPLOYMENT InVOLUN TARY UNEMPLOYMENT: Involuntary unemployment is a situation where a person is phy sically and mentally fit to work and also willing to work at existing wage rate, but does not get a job. He is forced to remain idle even if he is willing to wo rk. Voluntary And Involuntary Unemployment

RURAL UNEMPLOYMENT: This kind of employment prevails ion rural areas. The nature of problem is also complicated. There are only two types of unemployment common ly found in agricultural economy e.g. India A)SEASONAL UNEMPLOYMENT: A)SEASONAL In an agrarian economy like India, seasonal unemployment is the most significant type of unemployment in rural sector. Agriculture labour in India is mostly dep endent on monsoon. B) B)DISGUISED UNEMPLOYMENT: In the rural subsistence agrarian sector of the Indian economy, the problem of d isguised unemployment is also typical. Disguised

unemployment refers to that type of unemployment in which laborers appear to be working and employed but in reality, they are not employed as they do not add to the total output. In other words they are removed from their jobs, output would not decrease. URBAN UNEMPLOYMENT: This type of unemployment is found in urban a reas i.e. towns and cities. 1) Industrial Unemployment: This refers to unemploym ent amongst workers in industries and factories in urban areas. Industrial worke rs may be skilled or unskilled. Industrial is open unemployment. 2) Educated Une mployment: It is the problem of educated middle class people of urban society. I t means joblessness amongst the graduates, post graduates, doctors, engineers et c. However this type of unemployment does not exist in countries world wide. Thi s are specific type of unemployment that exist only in few countries especially those in involved in agricultural activities like India. Economists distinguish between five major types of unemployment, i.e., cyclical, frictional, structural and classical. Real-world unemployment may combine different types, while all f our might exist at one time.

CYCLICAL UNEMPLOYMENT: This type of unemployment exists due to inadequate effect ive aggregate demand. It gets its name because it varies with the business cycle , though it can also be persistent, as during the Great Depression of the 1930s. Gross domestic product is not as high as potential output because of demand fai lure, due to (say) pessimistic business expectations which discourages private f ixed investment spending. Low government spending or high taxes, under consumpti on, or low (or negative) net exports may also have this result. Some consider th is type of unemployment one type of frictional unemployment in which factors cau sing the friction are partially caused by some cyclical variables. For example, a surprise decrease in the money supply may shock participants in society. Then, we may see recession and cyclical unemployment until expectations adjust to the new conditions. In this case, the number of unemployed workers exceeds the numb er of job vacancies, so that if even all open jobs were filled, some workers wou ld remain unemployed. This kind of unemployment coincides with unused industrial capacity (unemployed capital goods). Classical economics rejects the conception of cyclical unemployment, seeing the attainment of full employment of resources and potential output as the normal state of affairs.

However, it accepts the theory to some extent as full employment can never be re ached. FRICTIONAL UNEMPLOYMENT: This unemployment involves people in the midst o f transiting between jobs, searching for new ones; it is compatible with full em ployment. It is sometimes called search unemployment and can be voluntary. New e ntrants (such as graduating students) and reentrants (such as former homemakers) can also suffer a spell of frictional unemployment. Frictional unemployment exi sts because both jobs and workers are heterogeneous, and a mismatch can result b etween the characteristics of supply and demand. Such a mismatch can be related to skills, payment, work time, location, attitude, taste, and a multitude of oth er factors. Workers as well as employers accept a certain level of imperfection, risk or compromise, but usually not right away; they will invest some time and effort to find a better match. This is in fact beneficial to the economy since i t results in a better allocation of resources. However, if the search takes too long and mismatches are too frequent, the economy suffers, since some work will not get done. Therefore, governments will seek ways to reduce unnecessary fricti onal unemployment. Frictional unemployment coincides with an equal number of vac ancies. Numerically, it is therefore maximal when the labour market is in equili brium. When for instance demand far exceeds supply, the frictionally unemployed will be few as they will get many job offers.

STRUCTURAL UNEMPLOYMENT: Unemployment which occurs due to fundamental changes in the structure of economy, is called structural unemployment. Mainly these are t he changes in population, government policies, technology etc. Generally, it is found in developing economies. Its is chronic unemployment. It is long term phen omena. CLASSICAL UNEMPLOYMENT: In this case, like that of cyclical unemployment, the number of job-seekers exceeds the number of vacancies. However, the problem here is not aggregate demand failure. In this situation, real wages are higher than the market-equilibrium wage. In simple terms, institutions such as "the min imum wage" deter employers from hiring all of the available workers, because the cost would exceed the technologically-determined benefit of hiring them (the ma rginal product of labour). Some economists theorize that this type of unemployme nt can be reduced by increasing the flexibility of wages (e.g., abolishing minim um wages or employee protection), to make the labor market more like a financial market.

HIDDEN UNEMPLOYMENT: Hidden, or covered, unemployment is the unemployment of pot ential workers that is not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security be nefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government "retraining" programmes) are not official ly counted among the unemployed, even though they are not employed. The same app lies to those who have taken early retirement to avoid being laid off, but would prefer to be working. The statistic also does not count the "underemployed" - t hose with part time or seasonal jobs who would rather have full time jobs. Becau se of hidden unemployment, official statistics often underestimate unemployment rates.

Unemployment levels are increasing dramatically in many parts of the world. Ther e is considerable debate among economists as to the causes of unemployment. Keyn esian economics emphasizes unemployment resulting from insufficient effective de mand for goods and service in the economy. Others point to structural problems, inefficiencies, inherent in labour markets. Classical economics tends to reject these explanations, and focuses more on rigidities imposed on the labor market f rom the outside, such as minimum wage laws, taxes, and other regulations that ma y discourage the hiring of workers. In the set up of a modern market economy, th ere are many factors, which contribute to unemployment. Causes of unemployment a re varied and it may be due to the following factors: Rapid changes in technology

Recessions Inflation

Disability Undulating business cycles

Changes in tastes as well as alterations in the climatic conditions. This may in turn lead to decline in demand for certain services as well as products. Attitude towards employers

Willingness to work Perception of employees

Employee values

Discriminating factors in the place of work (may include discrimination on the b asis of age, class, ethnicity, color and race).

Ability to look for employment Population

Unemployment has obvious and well-documented links to economic disadvantage and has also been connected in some discussion to higher crime rates especially amon g the young suicide, and homicide Garry Ottosen and Douglas Thompson (1996) broa den the consequences of unemployment, relating it to increases in the incidences of alcoholism, child abuse, family breakdown, psychiatric hospitalization, and a variety of physical complaints and illnesses. Some researchers have emphasized the importance of preventing youth from falling into unemployment traps. Robert Gitter and Markus Scheuer (1997) suggest that unemployment among youth not

only causes current hardship, but may also hinder future economic success. This is because unemployed youths are not able to gain experience and on-the-job trai ning and because a history of joblessness signals that the individual may not ha ve the qualities that are valued in the labour market. Attempts have, however, b een made to estimate the economic cost associated with unemployment. Ottosen and Thompson (1996, p.5) noted that "the United States loses a little less than one percentage point of potential gross domestic product (GDP) or output for each o ne percentage point of unemployment. This implies that an unemployment rate of 7 percent costs the United States at least $400 billion annually in foregone outp ut. This is more than $2,000 for every man, woman, and child over 16 years of ag e." Similarly, in Australia, Peter Kenyon (1998) calculated that the loss of GDP associated with an unemployment rate above the full-employment rate is the equi valent of one year s worth of GDP over the past two decades. In addition to the loss of GDP, high unemployment increases the burden on social welfare programs. These include unemployment insurance programs and other types of welfare, such a s food stamps, Medicaid, Medicare, and Supplemental Security Income (Ottosen and Thompson 1996). There are also intergenerational effects, as unemployment of pa rents will limit their capacity to finance the schooling of their children. As e ducation is the primary means of social mobility, this intergenerational effect will give rise to an inheritance of inequality. Unemployment rates

region Unemployment rate region Unemploymen t rate North America Canada United Sates 6.8 4.0 Middle East Israel Turkey United Arab Emirates 15.0 8.3 20.5 5.2 7.4 Africa Egyp t Suriname Algeria Tunisia Asia 8.1 14.0 29.8 15.6 8.8 7.3 South/Central America 2.3 Argentina Chile Colombia Costa Rica Peru Europe

France 9.6 Korea, Republic of Japan Philippines Singapore Sri Lanka Thailand Oceania 4.1 Germany Italy Netherlands Sweden United Kingdom Eastern Europe Bulgaria Czech Re public Hungary 7.9 10.5 3.3 4.7 5.5 4.7 10.1 4.4 8.0 2.4 16.4 8.3 6.4 Australia New Zealand 6.6 6.0

Poland Romania 16.1 7.1 To many economists, persistent unemployment is a sign of market failure because unemployment is a waste of scarce resources and leads to a loss of potential out put and a reduction in allocative efficiency. The economy is operating below the maximum output it could achieve. This might be illustrated by making use of a P PF or using the concept of the output gap.

. Unemployment Rate by State: 2003, 2004, and 2005 Country United States Alabama Alaska Arizona Arkansas 2003 2004 2005 6.0% 5.5% 5.1% 5.8 7.7 5.7 5.9 5.6 7.5 5.0 5.7 4.0 6.8 4.7 4.9

California Colorado Connecticut Delaware District of Columbia Florida Georgia Ha waii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massac husetts Michigan Minnesota Mississippi Missouri Montana 6.8 6.2 5.5 4.0 7.2 5.3 4.7 3.9 5.3 6.7 5.3 4.4 6.2 6.3 5.0 4.5 5.8 7.1 4.9 6.4 5.6 4.4 6.2 5.5 4.9 4.1 8.2 4.8 4.6 3.3 4.7 6.2 5.2 4.8 5.3 5.7 4.6 4.2 5.1 7.1 4.7 6.2 5.7 4.4 5.4 5.0 4.9 4.2 6.5 3.8 5.3 2.8 3.8 5.7 5.4 4.6 6.1 7.1 4.8 4.1 4.8 6.7 4.0 7.9 5.4 4.0 5.6% 5.5% 5.1%

Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina Nort h Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Caroli na South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia 4.0 5.1 4.5 5.9 5.9 6.4 6.5 6.2 5.6 8.1 5.7 12.0 5.4 6.7 3.5 5.5 6.7 5.7 4.5 4.1 7.4 6.0 3.8 4.3 3.8 4.8 5.7 5.8 5.5 6.1 4.8 7.4 5.5 10.6 5.2 6.8 3.5 5.4 6.1 5.2 3.7 3.7 6.2 5.3 3.8 4.1 3.6 4.4 5.3 5.0 5.2 5.9 4.4 6.1 5.0 11.3 5.0 6.8 3.9 5.6 5.3 4.3 3.5 3.5 5.5 5.0 3.6% 3.4% 3.4%

CIA figures for world unemployment rates, 2006

The natural rate of unemployment is the rate of unemployment where the labour ma rket is in a position of equilibrium. This means that the labour supply = labour demand at a given real wage rate. All those people willing and able to take pai d employment at the going wage rate do so. The diagram below shows the labour su pply (those willing and able to take work at a going wage rate) and the labour f orce - the number of active participants in the labour market. The labour force expands as the real wage rises because there is a greater incentive to search fo r paid work and sacrifice leisure. Employment on the x-axis measures the total l abour hours supplied by workers in the economy in a given time period. As the re al wage increases, the total number of hours supplied by the labour force will e xpand.

The natural rate of unemployment is not zero - at the equilibrium wage W1 in the diagram above, there is unemployment measured by AB. This is made up of frictio nal plus structural unemployment. At a wage rate W2 (above the equilibrium "mark etclearing wage") employment contracts along the labour demand curve and total u nemployment rises (see the diagram below)

Dis-equilibrium unemployment rises to the level shown by the distance CD. This i s because labour demand has fallen and the labour force has expanded. There is a n excess supply of labour some people who are willing and able to find employmen t cannot get paid work

The Non Accelerating Inflation Rate of Unemployment is the level of unemployment at which inflationary pressures in the economy are stable. According to supplyside economists, unemployment cannot be held permanently below its natural level . Some argue if actual unemployment falls below the natural rate (i.e. equilibri um unemployment) - there is upward pressure on wage inflation that then feeds in to general price inflation. Clearly changes in unemployment do have an effect on the risk of inflation. Consider this comment from the Bank of England. "Develop ments in the labour market are a key determinant of domestically generated infla tion." (UK Monetary Policy Committee minutes). As unemployment falls towards the NAIRU, skill shortages exert upward pressure on wages and producer prices, unti l any further falls in unemployment lead to future higher inflation.

Reducing unemployment is a key target for all Governments. High unemployment has enormous costs for individuals, businesses, the Government and the economy. The way of solving unemployment will depend upon its cause

METHODS: Government support to struggling industries in order to try to save jobs e.g. airline industry Provide more training and education to the unemployed. Thi s could help improve computer skills and communication. These people will become more confident and employable. Make more information available in job centres. Re duce unemployment benefits or cut benefits all together Try to bring the country out of a recession. The Government needs to try to create demand in the economy. It could; Give grants to businesses to produce goods Have projects such as road building Cut interest rates to encourage spending Cut income tax to encourage s pending NEW DEAL:Labours New Deal programme for young unemployed people was introduced ac ross the UK in April 1998. In June 1998 the Government launched a separate New D eal for Long-Term Unemployed People aged over 25+. The main options are: A subsid ised job with an employer Remaining in full-time education and training Work withi n the accredited voluntary sector and

Work experience with an environmental task force. The programme is designed to pr ovide pathways back into work for the long term unemployed many of whom have bec ome outsiders in the labour market despite the continuing strength of the Britis h economy. Higher levels of employment and economic activity add to total nation al output and should help to improve the overall performance of the labour marke t in sustaining long run economic growth.