Question

Provide four reasons why the unemployment rate may not be a very reliable indicator of the underutilization of labour

Answer 1

SOLUTION

MEANING - UNEMPLOYMENT RATE TOWARDS UNDERUTILIZATION OF LABOUR

Unemployment is a socio - economic situation when part of the active, working population cannot find work that they are able to perform. Unemployment is conditioned by excess of quality of people wanting to find a job over the amount of available jobs, corresponding to the profile and qualifications and applicants of these jobs. Thus able - boiled citizens, or job seekers registered at the labour exchange, who have no real opportunity to get a job in accordance with their education, specialization and labor skills in the market are considered to be unemployed. Thus the main aim is how unemployment affects labour market.

FOUR REASONS WHY THE UNEMPLOYMENT RATE MAY NOT BE REALIBLE INDICATOR TO THE UNDERUTILIZATION OF LABOUR.

• The overall unemployment rate for a country is a widely used measure of its unutilized labour supply. If employment is taken as the desired situation for the people in the labour force, unemployment becomes the undesirable situation. Still some short term unemployment can be necessary for ensuring adjustments to economic fluctuations. Unemployment rates by specific groups, defined by age, sex, occupation or industry , are also useful in identifying groups of workers and sectors most vulnerable to joblessness.
• While the unemployment rate may be considered the most informative labour market indicator reflecting the general performance of the labour and the economy as the whole, it should not be interpreted as the measure of economic hardship or of well - being. While based on the internationally recommended standards, the unemployment rate simply reflects the proportion of labour force that does not have a job but is available and actively looking for work. It says nothing about the economic resources of unemployed workers or their family members. Its use should therefore be limited serving as a measurement of labour and in indication of the failure to find work. Other measures including income related indicators, would be needed to evaluate the economic labour.
• It masks information on the composition of the jobless population and therefore misses out the particularities of the education level, ethnic origin, socio - economic background, work experience of the unemployed. Moreover the unemployed rate says nothing about the type of unemployment - whether it is cyclical or short term or structural or long term which is a critical issue for policy makers in the development of their policy responses especially given that structural unemployment cannot be addressed by boosting market demand only.
• The usual policy goal of governments, employers and trade unions is to have a rate that is as low as possible yet consistent with other social and economic policy objectives, such as low inflation and sustainable balance of payments situation. When using an unemployment rate as a guage for tracing cyclical developments, we are interested in looking at chances in looking over time