Reasons for Under Employment
Reasons for under employment
The number of wage employment seekers depends upon the following: the size of the population of working age, the number who, having sufficient unearned incomes, choose to remain idle; the number who, being in command of the requisite means of production, are self-employed; and the prevailing wage-rate and other incentives provided.
Normally, apart from the size of the population of working age, these factors are likely to be more or less stable over short periods. For instance, the span of life regarded as falling within the working age, while subject to variation as, a result of changes in the period of schooling or in the normal age for retirement consequent on changes in health standards and longevity, is likely to remain unchanged in the short period.
Moreover, even when some of these factors change somewhat, the net quantitative effect may not be important. Higher wages, for instance, may induce some of the older workers to postpone their retirement while these may impel some of the married women workers, now that their husbands are better off, to relinquish their jobs. The net effect of a rise in wages will not, therefore, be quantitatively important.
The same applies to other of these factors. The size of the population of working age, too, though not invariant, is measurable as it changes according to definite trends. It follows that the number of wage-seeking population can be determined with a great measure of accuracy. And since the average number of hours of work which each wage-employment seeker wants to put in is likely to be more or less stable in any short period, the total amount of wage employment sought is quite precisely measurable.
Similar observations may be made regarding the permissible allowance for seasonal and frictional unemployment. It will have to vary from season to season, and from year to year, in accordance with the inevitable seasonal variations in employment and in the magnitude of the structural shifts in demand and production that, together with immobility of labour, cause frictional unemployment. It may, therefore, be better defined as a range rather than as a precise figure. Since normally structural shifts in demand and production are unlikely to be violent or spasmodic and since in industrialized countries the incidence of seasonal unemployment is bound to be quite low, the allowance for frictional and seasonal unemployment needs to be very small. A U.N. study has suggested that this allowance need not be beyond a range of 2-4 or 3-5 per cent of the available labour force.
The possibility of measuring the size of the available labour force and inevitable minimum of frictional and seasonal unemployment makes full employment a determinate quantity. As suggested by a U.N. study, as a necessary step in the effective implementation of full-employment policies, each country should fix a full-employment target expressed in terms of the permissible range of frictional and seasonal unemployment. Unemployment in excess of the fixed target would indicate a lapse from full employment calling for remedial action. The fixation of such a target would help to reduce the chances of government inaction or vacillation in the face of growing unemployment. It may also help to maintain confidence among business men whose pessimism ordinarily plays a notable part in magnifying the downswing.
There is, however, the danger of government acting on a false scent. For at times, unemployment may exceed the target due to causes other than insufficient demand. The danger may be minimized by allowing the government the discretion to disregard the signal if it has clear evidence that rise in unemployment is not due to demand deficiency.