IN FOCUS Unemployment

What is unemployment?
How is the unemployment figures
obtained?
Why is there unemployment?
Should we be concerned with
unemployment?
Has unemployment been an issue in
Singapore history?
Section 1
Introduction to
Unemployment
1. INTRODUCTION TO
UNEMPLOYMENT
institutionalised
Not of working age
Economically active population Labour Force
Economically inactive population
Economically active population Labour Force
Employed
Unemployed
No. of Unemployed
No. of Employed
No. of Unemployed
= unemployment rate
Note that:
unemployment is a stock concept
How is
unemployment
taking a bath?
like
Well, maybe not like
taking a bath
But more like the amount
of water in a bathtub
Unemployment at any point
in time is some number that
represents a stock
such as the amount
of water in a bathtub
unemployment
People who lose their jobs or
exit the labour force represent
a new flow into the bathtub
People who find jobs
or enter the labour force can be
thought of as the water
that flows out by the drain
Section 2
Collation of Unemployment
Statistics & Limitations
Measures of Unemployment
There are two common official measures
of unemployment:
claimant
unemployment
standardized
unemployment
1
2
Claimant Unemployment
a measure of the number of people in
receipt of the unemployment-related
benefits

1
2

27
28

1
Claimant Unemployment

very easy to collect
statistics

statistics exclude all
those:
of working age
who are available for
work at the current
wage rates,
but who are not
eligible for benefits

Thus, the statistics understate
the true level of unemployment.
1
Claimant Unemployment
unemployment figures based on claims can be
inaccurate because:
some people find ways to cheat on the system by
collecting unemployment benefits:
even when they are employed
or have withdrawn voluntarily from the workforce
yet registering themselves as unemployed in order to
collect their benefits
Thus, the statistics overstate
the true level of unemployment.
1
Claimant Unemployment
If the government changes the eligibility conditions
for unemployment benefits so that fewer/more people
are now eligible:
this will reduce/increase the number of claimants
hence reducing/increasing the official number unemployed
even if there has been no change in the number of people
with or without work

Thus, comparison over time will be difficult.
Thus, the statistics understate / overstate
the true level of unemployment.
1
Standardised Unemployment
the measure used by:
the International Labour Office (ILO)
the Organisation for Economic Cooperation (OECD)

defines unemployed as:
the number of people of working age who are:

without a job
but have actively sought work in the last four weeks
and are available to start work in the next two weeks

figures compiled from the results of labour force
surveys
2
Standardised Unemployment
international comparisons are easier because:
international bodies use the same standardised
definition for all countries

However, it is a more expensive and time-
consuming method than the claimant count.

Moreover, it has 3 main discrepancies:
2
Failure to take
into account of the
discouraged workers
Meaning of
actively looking
for a job
Part-time vs full time
Standardised Unemployment
Moreover, it has 3 main discrepancies:
2








































unemployment rate
does not include
discouraged workers


People who:
have dropped out of the
labour force because they
are convinced that they
will not find a suitable job

have not made specific
efforts to find a job within
the previous weeks
although they are available
and willing to work
Failure to take
into account of the
discouraged workers
Meaning of
actively looking
for a job
actively looking for a
job subjective
meaning

Should we include
those who spend only
a few minutes a day to
scan the recruitment
advertisements
as part of the labour
force?
Part-time
vs full time
Some argue that part
time workers who are
willing to work full
time should be classified
as semihidden
unemployed.

Others argue that over
employment will offset
this group of part-time
workers because:
even if someone
works over time (50 or
60 hours weekly), he is
only counted as one
full-time worker.
1
2
3
Section 3
Causes of
Unemployment
3. TYPES OF
UNEMPLOYMENT
The Unemployed
Frictional
Unemployment
Structural
Unemployment
Cyclical
Unemployment
Frictional unemployment arises because of the
time required to match job seekers with job
openings due to imperfect information .
Frictional
Unemployment
Frictional
Unemployment
Frictional unemployment arises because of the
time required to match job seekers with job
openings due to imperfect information .
DBS BANK
UOB BANK
OCBC BANK
CITIBANK
BANK OF CHINA
MAS
Strengths and
Weaknesses
Attitude
Salary
Expectation
Experience Qualification
Frictional
Unemployment
Frictional unemployment arises because of the
time required to match job seekers with job
openings due to imperfect information .
Q: Is it possible to
eliminate frictional
unemployment?

Frictional
unemployment is
unavoidable in a
society.

This type of unemployment is, however not
very serious since it is usually of quite short
duration and involves relatively few people at
any given time.
Moreover, a limited amount of frictional
unemployment may even be a good thing as
workers take the time to find jobs that are well
matched to their skills, eventually raising the
productivity of the economy.
Structural
Unemployment
Structural unemployment occurs when there is
a mismatch of available and required skills
v
a
c
a
n
c
y

Skill

Staying in
Region A
V
a
c
a
n
c
y

i
n

R
e
g
i
o
n

A

J
o
b

O
p
e
n
i
n
g

i
n

H
e
a
l
t
h
c
a
r
e
Skill in
car
industry
. in a geographical or
occupational sector of the
economy

as a result of the structural
changes in the economy.

Arises when people are out of work due to the
introduction of some labour-saving technology .
(technological unemployment)
E.g introduction of internet/phone banking
structural changes
Arises due to a change in supply
Increases in cost of production causes the supply of the product to
discontinue.
Arises due to a change in demand
E.g consumer dd shifts from coal to other fuel cause structural
unemployment in the mining industry.
Structural Unemployment
Real World Examples
Yasheng Huang, an associate professor of
MIT, explained: "Basically, in the 1990's,
foreign firms based in America, Europe, Japan
and the rest of Asia moved their
manufacturing operations to China. "

The real losers, it seems, are mostly low-wage
workers elsewhere, like the ones at Hitachi
who lost their jobs in Japan, along with
workers in other parts of Asia who suffered
as employers began relocating plants to China.
Blue-collar workers in the United States have
also lost out.
(The New York Times, Feb 2006)
We need to confront the fact that automation and
technological innovation generally dwarf outsourcing as a
source of job churn. Go back as far as you want and you can
see a seemingly endless stream of jobs eliminated by
technological innovation: longshoremen put out of work by
containerized shipping, telephone operators put out of work
by computerized switching, factory workers put out of work
by robots, bank tellers put out of work by automatic teller
machines, receptionists put out of work by voicemail.
(CATO)
http://www.cato.org/research/articles/forum-050216.html

Structural unemployment is also more
serious than frictional unemployment as
the same jobs that disappear is unlikely to
return to the economy again.
Natural rate of unemployment
Frictional unemployment is inevitable and many
economies also suffer from structural
unemployment. Hence, a certain amount of
unemployment is normal or natural.

The natural rate of unemployment is the normal
unemployment rate around which the actual
unemployment rate fluctuates.

It is the rate of unemployment that arises from the
effects of frictional plus structural unemployment.
By full employment,
we sometimes mean full-
employment of all
resources, which means
producing at the potential level of
output of an economy.

Sometimes, we specifically refer
to the full-employment of
the workforce

Employment
What then is full employment?
This is why the natural rate of unemployment is
also defined as the rate of unemployment that
prevails when output and employment are at the
full employment.
Does full employment mean 100% employment?






Cyclical unemployment is the deviation in the actual rate
of unemployment from the natural rate.

As the name suggests, cyclical unemployment is
unemployment that arises from the business cycle.
Cyclical unemployment follows the ups and downs of
business cycle.
Cyclical
Unemployment
Natural rate of unemployment
frictional structural
Cyclical
Unemployment rate
Section 4
Costs of Unemployment
Costs of Unemployment
High levels of unemployment are costly to:
the individuals and families directly affected
local and regional economies
the economy as a whole

Two main types of costs involved:
economic costs arising
from people out of work
social costs
These costs are
the greatest when
long-term structural
unemployment is high.
Costs of Unemployment
(a) Lost of output of goods and services

(b) Fiscal Costs to the government

(c) Deadweight loss of investment in human
capital

(d) Social costs
(a) Lost of Output
of Goods and Services
Unemployment
wastage of scarce
economic resources
reduces the long run
growth potential
of the economy
An economy with
high unemployment
is producing below
its productive capacity.

The hours that the
unemployed do not work
can never be recovered.
But if unemployment can be
reduced, total national output
can rise, leading to an improvement
in economic welfare.
(b) Fiscal Costs
to the Government
Each year, high unemployment has an
impact on:
government expenditure
taxation
the level of government borrowing
(b) Fiscal Costs
to the Government
An increase
in
unemployment
Higher benefit payments
Lower tax revenues
They also spend less,
hence contributing less
to the government
in indirect taxes.
Rise in government
spending with higher
benefit payments
Fall in tax revenues
with less income tax
and indirect taxes
collected
Higher government
borrowing requirement
When individuals
are unemployed,
they receive benefits
they pay no income tax
(c) Deadweight Loss
of Investment
in Human Capital
Unemployment
wastes some of the
scarce resources
used in training workers
reduces their chances of
gaining employment
in the future
This increases the
economic burden
on the government
and society.
Especially for those
who are unemployed
for long periods:
They become de-skilled:
(skills become increasingly
dated in a rapidly
changing job market)
(d) Social Costs
Rising unemployment can lead to social
problems, such as:
rising crime

increased divorce rates

worsening health
(d) Social Costs
Areas of High
unemployment
a decline in real income
and spending
a rising scale of relative
poverty and income inequality
As younger workers are more
geographically mobile than older employees,
there is a risk that such areas
will suffer from an ageing potential workforce.
This makes them
less attractive as
investment locations
for new businesses.
Section 5
Unemployment:
The Singapore Story
Frictional unemployment is present in any
economy, inclusive of Singapore.
However, it is not likely to result in
macroeconomic problems that would be a
concern to the government.
1
Frictional Unemployment
in Singapore
Singapores unemployment in recent years and
in the future ahead would largely be structural
in nature.

It has been caused mainly by:
the competition from the new emerging
economies and
the improvement in technology.
2
1
2
Structural Unemployment
in Singapore
Competition from the
New Emerging Economies
For example, many low-end manufacturing
firms in both the textile and electronic
industries, have relocated overseas particularly
to China and India to take advantage of:

their low cost operation (low wages)
the large domestic market
the evasion of tariff barriers

1
China India
Improvement in Technology
The move by Singapore government to
encourage investment of high-tech and
knowledge-intensive industries result in:

many who are retrenched in the textile and
electronic industries remaining unemployed
because they lack the high and new skills
needed currently in the job market.
2
Structural Unemployment
in Singapore
Unemployment can only be
reduced:
if the mindset of the population
towards retraining and skills
upgrading improves swiftly
Structural Unemployment
in Singapore
However, with an ageing
population, it is inevitable that:
the process of adjustment and
the opportunities available to
them would be limited and
probably confined to specific
sectors of the economy
Cyclical unemployment was evident in
Singapore during the recessions in:
3
Cyclical Unemployment
in Singapore
Year
Unemployment
Rate (%)
Year
Unemployment
Rate (%)
1980 3.0 1987 5.1
1981 2.9 1988 3.3
1982 2.6 1989 2.1
1983 3.2 1990 1.7
1984 2.7 1991 1.9
1985 4.6 1992 2.8
1986 6.5 1993 2.8
Source: http://www.singstat.gov.sg
The 1985 1986 Recession
1
The 1985 1986 Recession
Singapore registered the highest rate of
unemployment of 6.5% in 1986 from just
2.7% in 1984.

The causes are:
a fall in aggregate demand
rising costs of production
1
The 1985 1986 Recession
Singapore, being an open economy (evident by
the fact that her trade is three times of its
GDP) is very vulnerable to the economic
performances of her trading partners.

The economic downturn in 1985-86, caused the
Republic to experience its first negative growth rate
(-1.5%) in 1986.

While the marine sector was under pressure,
electronics exports were contracting and
investments were falling, all these
resulted in a fall in aggregate demand.
1
The 1985 1986 Recession
Simultaneously, the nation has become
uncompetitive:
a tightening labour market had continued to drive
up wages despite calls to moderate pay hikes in the
early 1980s
rents and statutory-board charges had also been
rising steadily.
This loss of competitiveness is most clearly seen in
the GDP breakdown for 1985 as investment
declined rather substantially.
1
Year
Unemployment
Rate (%)
Year
Unemployment
Rate (%)
1993 1.7 2000 2.7
1994 1.7 2001 2.7
1995 1.8 2002 3.6
1996 1.7 2003 4.0
1997 1.4 2004 3.4
1998 2.5 2005 3.1
1999 2.8 2006 2.7
Source: http://www.singstat.gov.sg
The 1997 1999 Recession
2
The 1997 1999 Recession
Once again, Singapore experienced a rise in
unemployment rate from 1.4% in 1997 to 2.5%
in 1998 and rose further to 2.8% in 1999 during
this Asian Financial Crisis.

The burst of the property bubble in Thailand finally
caused Thailand to abandon the baht-US dollar
peg.

This caused regional currencies
to fall against the US$.

Despite S$ has maintained its
value, we did not escape the spill over.
2
The 1997 1999 Recession
The loss of confidence by investors with the
other ASEAN economies when their stock
markets and currencies plummeted brought
about a sharp fall in Singapores real GDP
growth rate to a mere 0.4% in 1998.

This was attributed to:
a fall in investment
a fall in consumption
2
leading to a contraction
in aggregate demand
Year
Unemployment
Rate (%)
Year
Unemployment
Rate (%)
1993 1.7 2000 2.7
1994 1.7 2001 2.7
1995 1.8 2002 3.6
1996 1.7 2003 4.0
1997 1.4 2004 3.4
1998 2.5 2005 3.1
1999 2.8 2006 2.7
Source: http://www.singstat.gov.sg
3
The 2001 2003 Recession
The 2001 2003 Recession
The September 11 attacks in the US in 2001
followed by the threat of terrorism has eroded
both business and consumer confidence:

this largely explained the rise in unemployment rate
for Singapore from 2.7% in 2001 to 3.6% in 2002.

The heavy dependence on the US as our
major export market greatly accounts
for the fall in aggregate demand.
3
The 2001 2003 Recession
The outbreak of Severe Acute Respiratory
Syndrome (SARS) which began in March
2003, further aggravated the ailing
economy as it resulted in a contraction of
tourism flows and domestic retail trade
in Singapore.

Thus, the economy registered a 4%
unemployment rate in the year 2003.
3
Unemployment in Singapore
There has been a relatively long period of full
employment in Singapores history
except for the three short recessions in 1985-
1986, 1997-1999 and 2001-2003.

Undoubtedly, recessions will recur in the
future,
so long as the Singapore economy is heavily
dependent on external trade to fuel its domestic
demand.

On the other hand, as the economy is fast
transiting into a knowledge-based economy
structural unemployment has been and will be on
the rise for many years to come.
Section 6
Checklist
Checklist
What is unemployment?
How is the unemployment figures
obtained?
Why is there unemployment?
Should we be concerned with
unemployment?
Has unemployment been an issue in
Singapore history?
The End