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Key Issues of Unemployment

Key Issues of Unemployment

The population of India has increased by more than 181 million during the decade 2001-2011. The population of India, at 1210.2 million, is almost equal to the combined population of U.S.A., Indonesia, Brazil, Pakistan, Bangladesh and Japan put together (1214.3 million)

Important questions relating to unemployment

The unemployment rate in India is estimated at 9.4 percent or 94 persons out of 1000 persons

  • How can millions of people be unemployed when so much of work has to be done?
  • What flaw in the modern mixed economy forces so many who want to work remain idle?
  • Should nations take steps to alleviate the hardships of joblessness?
  • Do high unemployment benefits just reduce the incentive to work and end up raising the unemployment rate?

These questions always come up every time there is a rise in the unemployment ratio. Unemployment continues to plague the modern world. Another reason which can be attributed to unemployment is that, there exist a lack of correlation or can we call it a ‘mismatch’ between the subject of study and the line of action. It has been stated that for every two percent fall in the GDP, there is one percent rise in unemployment rate. The association between the output market and the labor market can be clearly understood from this statistics.

Unemployment (or joblessness) occurs when people are without work and actively seeking work.

Economic as well as a social problem

Unemployment is not only an economic problem but also a social problem. As an economic problem, it is a waste of valuable resources. As a social problem, it is a source of enormous suffering, as unemployed workers or workers who are temporarily employed suffer and struggle due to reduced incomes. The distress spills over to affect people’s emotions and has a direct impact on their family lives.

A mismatch between the supply and demand of workforce also can create what is called as structural unemployment. This can happen because the demand for one kind of labor is rising while the demand for any other kind is falling and supplies do not quickly adjust. Cyclical unemployment is another kind, where the overall demand for labor is low.


We have seen that unemployment and recessions impose great costs on societies. Yet countries do not attempt to reduce unemployment to zero or even close to zero. Moreover when output approaches its potential, the central banks often begin to raise their interest rates and slow the expansion. Just why is that, countries don’t stimulate their economies until involuntary unemployment disappears? The reason is that super-full employment leads to shortage in labor and product markets and soon inflation would rise to intolerable levels.

Business Cycle

Business cycle is one of the key issues of macro economics. The economic pattern of a country never follows a smooth trend. Several years of economic prosperity will be followed by a sudden recession or a panic. Then the national output falls, real income declines followed by a jump in unemployment rates to uncomfortably high levels as legions of workers lose their job. Eventually the bottom is reached and recovery begins. There exist many theories to explain the cyclical pattern of an economy but none is valid at all times and places. Governments have to anticipate recessions and stop them from snowballing into depressions. Crude oil price is an important economic indicator for developing nations which helps them to predict the fluctuations in the business cycle that is to follow.

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