The first published use of the term "macroeconomics" was by the Norwegian Economist Ragnar Frisch in 1933 and before this, there already was an effort to understand many of the broad elements of the field.
Ragnar Frisch DEFINATION OF MACROECONOMICS: Macroeconomics is a branch of economics that deals with the performance, structure and behavior of a national or a regional economy as a whole. Since the 1930s economists have split their economics into two parts. Economics is divided into two main divisions • Microeconomics • Macroeconomics
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 whom" question). It explores how various systems of incentives and ways of making decisions (such as "dollar voting" or various forms of political voting) work to 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. Macroeconomists study aggregated indicators such as GDP, unemployment rates and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investments, international trade and international finance. Macroeconomics is a broad field of study, however, there are two major areas of research in Macroeconomics: The attempt to understand the causes and consequences of shortrun fluctuations in national income (the business cycle). The attempt to understand the determinants of long-run economic growth (increases in national income). Macroeconomic models and their forecasts are used by both governments and large corporations to assist in the development and evaluation of economic policy and business strategy
DEFINATION: Unemployment is the state in which a person is without work, available to work, and is currently seeking work. It is a situation where there is non-availability of job for the persons. Its is an situation in which a person who is physically capable, mentally willing to work at existing wage rate does not find any job and is forced to remain unemployed.
INTRODUCTION:
It involves a waste of human resource and results in many social evils like theft, pick- pocketing, robbery, murder etc. It’s a serious economic, social and political problem of the country. It’s a cause as well as effect of poverty. The unemployment 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 cycles by manipulating aggregate demand. There is also disagreement on how exactly to measure unemployment. For example, the conservative government, when in power in the United Kingdom, changed the way in which employment was measured several times. Each time, the figure reduced (Social Trends). Different countries experience different levels of unemployment; the USA currently experiences lower unemployment levels than the European Union, and it also changes over time (e.g. the 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 reasons 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 remuneration than that in the earlier jobs and therefore they prefer to remain unemployed. Such a kind of unemployment is referred to as VOLUNTARY UNEMPLOYMENT InVOLUNTARY UNEMPLOYMENT: Involuntary unemployment is a situation where a person is physically 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 work.
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 commonly found in agricultural economy e.g. India
A) A)SEASONAL SEASONAL UNEMPLOYMENT: In an agrarian economy like India, seasonal unemployment is the most significant type of unemployment in rural sector. Agriculture labour in India is mostly dependent on monsoon.
B) B)DISGUISED UNEMPLOYMENT:
In the rural subsistence agrarian sector of the Indian economy, the problem of disguised 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 areas i.e. towns and cities. 1) Industrial Unemployment: This refers to unemployment amongst workers in industries and factories in urban areas. Industrial workers may be skilled or unskilled. Industrial is open unemployment. 2) Educated Unemployment: It is the problem of educated middle class people of urban society. It means joblessness amongst the graduates, post graduates, doctors, engineers etc. However this type of unemployment does not exist in countries world wide. This 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 four might exist at one time.
CYCLICAL UNEMPLOYMENT: This type of unemployment exists due to inadequate effective 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 failure, due to (say) pessimistic business expectations which discourages private fixed investment spending. Low government spending or high taxes, under consumption, or low (or negative) net exports may also have this result. Some consider this type of unemployment one type of frictional unemployment in which factors causing 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 number of job vacancies, so that if even all open jobs were filled, some workers would 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 reached. FRICTIONAL UNEMPLOYMENT: This unemployment involves people in the midst of transiting between jobs, searching for new ones; it is compatible with full employment. It is sometimes called search unemployment and can be voluntary. New entrants (such as graduating students) and reentrants (such as former homemakers) can also suffer a spell of frictional unemployment. Frictional unemployment exists because both jobs and workers are heterogeneous, and a mismatch can result between the characteristics of supply and demand. Such a mismatch can be related to skills, payment, work time, location, attitude, taste, and a multitude of other 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 it 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 frictional unemployment. Frictional unemployment coincides with an equal number of vacancies. Numerically, it is therefore maximal when the labour market is in equilibrium. 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 the changes in population, government policies, technology etc. Generally, it is found in developing economies. Its is chronic unemployment. It is long term phenomena. 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 minimum wage" deter employers from hiring all of the available workers, because the cost would exceed the technologically-determined benefit of hiring them (the marginal product of labour). Some economists theorize that this type of unemployment can be reduced by increasing the flexibility of wages (e.g., abolishing minimum wages or employee protection), to make the labor market more like a financial market.
HIDDEN UNEMPLOYMENT: Hidden, or covered, unemployment is the unemployment of potential 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 benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government "retraining" programmes) are not officially counted among the unemployed, even though they are not employed. The same applies 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" - those with part time or seasonal jobs who would rather have full time jobs. Because of hidden unemployment, official statistics often underestimate unemployment rates.
Unemployment levels are increasing dramatically in many parts of the world. There is considerable debate among economists as to the causes of unemployment. Keynesian economics emphasizes unemployment resulting from insufficient effective demand 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 from the outside, such as minimum wage laws, taxes, and other regulations that may discourage the hiring of workers. In the set up of a modern market economy, there are many factors, which contribute to unemployment. Causes of unemployment are 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 basis 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 among the young suicide, and homicide Garry Ottosen and Douglas Thompson (1996) broaden 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 training and because a history of joblessness signals that the individual may not have the qualities that are valued in the labour market. Attempts have, however, been 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 one percentage point of unemployment. This implies that an unemployment rate of 7 percent costs the United States at least $400 billion annually in foregone output. This is more than $2,000 for every man, woman, and child over 16 years of age." Similarly, in Australia, Peter Kenyon (1998) calculated that the loss of GDP associated with an unemployment rate above the full-employment rate is the equivalent 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 as food stamps, Medicaid, Medicare, and Supplemental Security Income (Ottosen and Thompson 1996). There are also intergenerational effects, as unemployment of parents will limit their capacity to finance the schooling of their children. As education is the primary means of social mobility, this intergenerational effect will give rise to an inheritance of inequality.
Unemployment rates
region
Unemployment rate
North America
region
Unemploymen t rate
Middle East
Canada
6.8
Israel
8.8
United Sates
4.0
Turkey
7.3
United Arab Emirates
2.3
South/Central America
Argentina
15.0
Africa
Chile
8.3
Egypt
8.1
Colombia
20.5
Suriname
14.0
Costa Rica
5.2
Algeria
29.8
Peru
7.4
Tunisia
15.6
Europe
Asia
France
9.6
Korea, Republic of
4.1
Germany
7.9
Japan
4.7
Italy
10.5
Philippines
10.1
Netherlands
3.3
Singapore
4.4
Sweden
4.7
Sri Lanka
8.0
United Kingdom
5.5
Thailand
2.4
Eastern Europe
Oceania
Bulgaria
16.4
Australia
6.6
Czech Republic
8.3
New Zealand
6.0
Hungary
6.4
Poland
16.1
Romania
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 output 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 PPF or using the concept of the output gap.
.
Unemployment Rate by State: 2003, 2004, and 2005
Country
2003 2004 2005
United States
6.0% 5.5% 5.1%
Alabama
5.8
5.6
4.0
Alaska
7.7
7.5
6.8
Arizona
5.7
5.0
4.7
Arkansas
5.9
5.7
4.9
California
6.8
6.2
5.4
Colorado
6.2
5.5
5.0
Connecticut
5.5
4.9
4.9
Delaware
4.0
4.1
4.2
District of Columbia
7.2
8.2
6.5
Florida
5.3
4.8
3.8
Georgia
4.7
4.6
5.3
Hawaii
3.9
3.3
2.8
Idaho
5.3
4.7
3.8
Illinois
6.7
6.2
5.7
Indiana
5.3
5.2
5.4
Iowa
4.4
4.8
4.6
Kansas
5.6% 5.5% 5.1%
Kentucky
6.2
5.3
6.1
Louisiana
6.3
5.7
7.1
Maine
5.0
4.6
4.8
Maryland
4.5
4.2
4.1
Massachusetts
5.8
5.1
4.8
Michigan
7.1
7.1
6.7
Minnesota
4.9
4.7
4.0
Mississippi
6.4
6.2
7.9
Missouri
5.6
5.7
5.4
Montana
4.4
4.4
4.0
Nebraska
4.0
3.8
3.8
Nevada
5.1
4.3
4.1
New Hampshire
4.5
3.8
3.6
New Jersey
5.9
4.8
4.4
New Mexico
5.9
5.7
5.3
New York
6.4
5.8
5.0
North Carolina
6.5
5.5
5.2
North Dakota
3.6% 3.4% 3.4%
Ohio
6.2
6.1
5.9
Oklahoma
5.6
4.8
4.4
Oregon
8.1
7.4
6.1
Pennsylvania
5.7
5.5
5.0
Puerto Rico
12.0
10.6
11.3
Rhode Island
5.4
5.2
5.0
South Carolina
6.7
6.8
6.8
South Dakota
3.5
3.5
3.9
Tennessee
5.5
5.4
5.6
Texas
6.7
6.1
5.3
Utah
5.7
5.2
4.3
Vermont
4.5
3.7
3.5
Virginia
4.1
3.7
3.5
Washington
7.4
6.2
5.5
West Virginia
6.0
5.3
5.0
CIA figures for world unemployment rates, 2006
The natural rate of unemployment is the rate of unemployment where the labour market 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 paid employment at the going wage rate do so. The diagram below shows the labour supply (those willing and able to take work at a going wage rate) and the labour force - 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 for paid work and sacrifice leisure. Employment on the x-axis measures the total labour hours supplied by workers in the economy in a given time period. As the real wage increases, the total number of hours supplied by the labour force will expand.
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 frictional plus structural unemployment. At a wage rate W2 (above the equilibrium "marketclearing wage") employment contracts along the labour demand curve and total unemployment rises (see the diagram below)
Dis-equilibrium unemployment rises to the level shown by the distance CD. This is because labour demand has fallen and the labour force has expanded. There is an excess supply of labour some people who are willing and able to find employment 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 supply-side economists, unemployment cannot be held permanently below its natural level. Some argue if actual unemployment falls below the natural rate (i.e. equilibrium unemployment) - there is upward pressure on wage inflation that then feeds into general price inflation. Clearly changes in unemployment do have an effect on the risk of inflation. Consider this comment from the Bank of England. "Developments in the labour market are a key determinant of domestically generated inflation." (UK Monetary Policy Committee minutes). As unemployment falls towards the NAIRU, skill shortages exert upward pressure on wages and producer prices, until 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. This could help improve computer skills and communication. These people will become more confident and employable. Make more information available in job centres. Reduce 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 spending
NEW DEAL:Labour’s New Deal programme for young unemployed people was introduced across the UK in April 1998. In June 1998 the Government launched a separate New Deal for Long-Term Unemployed People aged over 25+. The main options are: •A subsidised job with an employer •Remaining in full-time education and training •Work within the accredited voluntary sector and
•Work experience with an environmental task force. The programme is designed to provide pathways back into work for the long term unemployed – many of whom have become outsiders in the labour market despite the continuing strength of the British economy. Higher levels of employment and economic activity add to total national output and should help to improve the overall performance of the labour market in sustaining long run economic growth.
