Unemployment occurs when the entire figure of able work forces and adult females of working age seeking paid work. It is a “tragedy to the single ” ( Beveridge, 1931 ) and is normally mensurating utilizing the unemployment rate which is defined as the per centum of those in the labour force who are unemployed. For illustration, the unemployment rate in UK was 7.8 per cent for the three months to June 2009 and the figure of unemployed people increased by 220,000 over the one-fourth and by 750,000 over the twelvemonth, to make 2.43 million, harmonizing to the National Office for Statistics ( NOS, 2009 ) . A figure of factors are responsible for the presence of unemployment. The inquiry is “what are the redresss for the assorted economic malfunctions taking to unemployment? ” . This essay will research the causes of unemployment and so it will propose suited redresss in order to bring around this “symptom” ( Beveridge, 1931 ) .

Literature Review

Keynes claimed that deficient effectual demand for merchandises and services in the economic system is the primary cause of unemployment ( Keynes, 1936 ) . Other, argued that structural jobs such as rising prices are built-in parts in labor markets ( structural unemployment ) ( Jackman & A ; Roper, 1987 ) making end product losingss and therefore unemployment. In fact, Harold Wilson, the former British Prime Minister, argued that “Inflation is the female parent and the male parent of unemployment” ( Dawson, 1992, p. 57 ) .

However, classical or neoclassical economic sciences tend to reject these accounts. In fact, they focus more on the extra demand for goods and on the extra supply for labor which consequences in rigidnesss imposed on the labour market from the outside, such as minimal pay Torahs, higher revenue enhancements on labor, and other ordinances that may deter the hiring of workers ( classical unemployment ) ( Argy, 1994 ) .

The chance that, high labor revenue enhancements may do unemployment appears to be sensible in the current clime. For illustration, unemployment in EU rose around 4 per centum points from 1965 to 1995 and the investing portion of end products decreased about 3 per centum points with a growing lag of 4 per centum points a twelvemonth harmonizing to research ( Daveri, Tabellini, Bentolila and Huizinga 2000 ) . However, Lucas argued that people are non in employment as mostly due to voluntary picks by the unemployed ( frictional unemployment ) ( Hayes, 2006 ) .

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

Some of the most well-known and well-respected economic experts in the universe, demonstrated that ill-conceived policies is one of the most of import causes of high unemployment ( Modigliani et all. , 1998 ) . In fact, mistakes in demand direction, misguided supply policies, lower limit pay statute law, occupation security statute law, work-sharing and early retirement, played a important function in accounting for unemployment ( ibid ) .

There appears to be a focal point on three policies to battle unemployment ( ibid ) . The first policy was to increase public sector investing as a agency of increasing private sector investing in order to excite employment. The 2nd policy was to promote the cardinal bank to take down the involvement rate as a agency to excite private sector investing in order to increase the demand for labor. The concluding policy was to increase work inducements ( to houses and workers ) as a agency of increasing employment. In footings of the 2nd proposal, it should be noted that if houses are presently runing with significant extra capacity, aiming employment via private sector investing may non be the best short-term scheme. However, the different positions may be right in different ways, lending to our apprehension of different causes of unemployment.

Causes of unemployment

In a free market economic system, the most of import cause of unemployment is the fact that the jurisprudence of supply and demand is non truly applied to the monetary value to be paid for employ people. In state of affairss of diminishing demand for merchandises and services the rewards of all employees are non automatically reduced by the needed per centum to do the concern feasible. In the classical model, such unemployment is due to the bing legal model, along with the market by non-market establishments such as labour brotherhoods and authorities.

Another cause of unemployment which is no less of import than the aforesaid causes is alterations in the labour force. The labour force is made up of people who are of working age and non presently in full-time instruction. Their figure will alter with the demographic ( age ) construction of the population. If there is a baby-boom ( a rapid addition in the birth rate ) so these people will go of working age between 16 and 21 old ages subsequently. They so join the work-force. If there is the same figure of people retiring from the work-force at the other terminal, so unemployment will remain the same. However, following a babe roar there are frequently more joining than go forthing the work-force.

The prescription

Strong determinations must taken by authoritiess to set up a Committee to find a just pay, and indicate the economic and legal agencies for guaranting a amusement park pay to every established employed member. Furthermore, legal prescription of minimal rewards in industries, finding of different pay rates between assorted businesss in an industry and publicity of just pay understandings wherever possible, consist some of the stairss authoritiess should follow.

Purportedly that houses are usually runing with extra capacity, and that bring oning new investing will necessitate increasing accomplished net incomes in the short-run, the best short-term scheme is the 1 that boosts shortage disbursement ( i.e. reduces non-business nest eggs ) and, therefore, existent net incomes. Hence, of the two demand-side policies designed to increase employment, merely the proposal to increase public sector investing ( financed by shortage disbursement ) is likely ( through its impact on short-term net incomes ) to bring on extra hiring in the short-term. Therefore, houses will engage more workers as their short-term net incomes outlooks addition, but lower involvement rates will non bring on them to set about new investing until some optimism has been generated. This latter will happen merely after short-term net incomes cause an upward alteration of long-term net income outlooks.

Two efficient ways for authoritiess to decide the high degree of unemployment would be either to increase the figure of occupations for persons or to offer early retirement to older persons who are close to retirement. With respect to the first of the two ways, making new occupations seems to be dependable. However, clip authoritiess need to make new occupations might take many old ages. Sing the 2nd solution, there is an excess disbursal involved in paying the excess retirement monies, but that may be more than offset by the nest eggs in non holding to pay unemployment benefits, and the extra revenue enhancement grosss paid by the hired workers, and the greater ripple consequence their monies would hold on the overall economic system.


Direct occupation creative activity to use the excess people in the work-force might be the most promising solution to the unemployment job in the European Union. In fact, a plan of direct occupation creative activity in the signifier of the public plants would accomplish true full employment ( i.e. zero nonvoluntary unemployment ) . However, this solution might take many old ages to be implemented and there is no any warrant that there will of all time be adequate occupations. A simple and effectual manner for authoritiess to cut down unemployment would be to offer early retirement to certain, older, persons who are already near retirement, but are still keeping on to their occupations until they reach age 65.

Measures For Reducing Unemployment Rate

Framing economic policies, bettering labour mobility, helping in developing enhanced work wonts are some of the steps, which may be taken to cover with unemployment. Widening unemployment insurance benefits is besides a agency of rendering fiscal protection to the unemployed. This system was foremost introduced during the period of Great Depression ( 1930s ) .

Macro Economic Stabilization Policy

In order to provide to the demands of the unemployed, the authorities has introduced the macro-economic stabilisation policy, which aims at supplying fiscal aid to the workers till the clip of recovery in the economic system.


I'm Niki!

Would you like to get a custom essay? How about receiving a customized one?

Check it out