1. Unemployment In Pakistan
A Research on MacroeconomicTopic
Batch : MPA 1st
section B
Dated : 11th January 2016
Submitted to : Sir Shabib Ul Hassan
Submitted by : Asad Ashiq Ali, Maaz Ali Naqvi,
Zohaib Iqbal Ansari, Mehrad Malik

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ABSTRACT
Our main objective of this research report was to identify the different types of
unemployment, their impacts and the ways to overcome the problems caused by
unemployment in a particular economy.
The areas of an economy which are affected by unemployment will also be looked
forward to such as inflation rate, economic and social stability and so on.
We will be focusing on Pakistan’s economy, in particular in the last parts of the
report where we will focus on unemployment trends and patterns of
unemployment in the country from years 2013 till 2015.

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Table Of Contents
Abstract 2
Introduction 4
Conceptof Unemployment 5
Types of Unemployment 9
Reasons and problems of Unemployment 12
Phillips Curve 15
How to deal with Unemployment 17
Unemployment rate in Pakistan 19
Conclusion 20
References 21

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INTRODUCTION
Toselect a topic from a vast variety that macroeconomics have to offer for a
research report, it pretty much challenged for us to select a single topic as
economics and macroeconomics in particular is interlinked and connected within.
So when we finally came down to selecting a single topic which we though will be
useful and comprehensive to complete a report on was the topic of unemployment.
Unemployment is considered as one of the major macroeconomic problems that
any economy in the world would face and if not tackled correctly, may bring
disastrous consequences for the economy.
To start our report, we would like to provide a brief introduction about our topic
which in itself is comprehensively vast and detailed.
Our report will start on with the introduction of the term unemployment and
moving further on we will be discussing in detail the different types of
unemployment there impacts and effects and the economy and our society.
Also, we will be discussing the remedies that are available to us to tackle the
situations caused by unemployment.

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The concept of unemployment
It is a situation that occurs when a person who is actively searching for
employment is unable to find work. Unemployment is often used as a measure of
the health of the economy. The most frequently cited measures of unemployment
are the unemployment rate. This is the number of unemployed persons divided by
the number of people in the labor force.
The above is the equation used to calculate rate of unemployment in an economy.
Unemployment represents the number of people in the work force who want to
work but do not have a job. It is generally stated as a percentage and calculated by
dividing the number of people who are unemployed by the total work force.
In contrast, the work force is made up of those people who want to work; it
excludes people who are retired, disabled, and able to work, but not currently
looking for a position; for instance, they may be taking care of children or going to
college.

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Unemployment Rate
The unemployment rate is the percentage of the labor force that is currently
unemployed, but was available for job in last four weeks and was actively seeking
employment in that period. It is the ratio of the number of unemployed people to
the sum of the number of employed and unemployed people.
It is arguably the single most important economic statistic. The closer the rate is at
the natural rate of unemployment, the healthier the economy is. An unemployment
rate significantly higher than the natural rate of unemployment means that the
economy is in recession.
According to the definition of the Bureau of Labor Statistics (BLS), employed
persons are persons who are:
 Aged 16 or older,
 Work for an employer or are self-employed,
 Not volunteers, and
 Not engaged in self-service suchas homemaking, etc.
Unemployed persons are persons who:
 Are aged 16 years or older,
 Are not engaged in any employment (self or otherwise),
 We're available for job in the last four weeks, and
 Have made specific efforts to find a job at any time during last four weeks.
In the following pages we will look at two different worked examples on how the
unemployment rate is calculated so the conceptgets much clearer.

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Worked example
Formula
Unemployment Rate =
Unemployed
Employed + Unemployed
Example 1
In December 2012, 143,060 thousand of US residents were employed and 11,844
thousand were unemployed. Find the unemployment rate for December 2012.
Unemployment rate = 11,844 ÷ (143,060 + 11,844) = 7.64%
Example 2
The following data are from the labor department of Bretzelburg. Calculate the
country's unemployment rate.
Non-institutionalized civilian population 1,646,303
Employed people 1,481,232
Discouraged workers 40,202
Volunteers 13,200
Number of employed people is 1,481,232. We have to indirectly find the number
of unemployed people as follows:
Non-institutionalized civilian population 1,646,303
Employed people (1,481,232)
Discouraged workers (40,202)

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Volunteers (13,200)
Unemployed 111,669
Unemployment rate = 111,660 ÷ (111,669 + 1,481,232) = 7.01%
The above two were examples of how we calculate the rate of unemployment with
two different perspectives. The example number 1 was a simple mathematical
calculation of data in which calculations were simple and straight forward
according to given data.
Whereas we see the second example, we have bifurcated the employed and
unemployed people into categories like volunteers, civilians etc.
In the following pages we will have a look at how many types of unemployments
are there in a economy, the problems they bring along and so on.

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Types of unemployment
There are several types of unemployment, each one defined in terms of cause and
severity. The list is as follows:
1. Cyclical unemployment
Cyclical unemployment exists when individuals lose their jobs as a result of a
downturn in aggregate demand (AD). If the decline in aggregate demand is
persistent, and the unemployment, long-term, it is called either demand
deficiency, general, or Keynesian unemployment.
2. Structural unemployment
Structural unemployment occurs when certain industries decline because of long
term changes in market conditions. Forexample, over the last 20 years UK motor
vehicle productionhas declined while car production in the Far East has increased,
creating structurally unemployed car workers. Globalization is an increasingly
significant cause of structural unemployment in many countries.
3. Regional unemployment
When structural unemployment affects local areas of an economy, it is called
‘regional’ unemployment. Forexample, unemployed coal miners in South Wales
and ship workers in the North East add to regional unemployment in these areas.

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4. Classical unemployment
Classical unemployment is caused when wages are ‘too’ high. This explanation of
unemployment dominated economic theory before the 1930s, when workers
themselves were blamed for not accepting lower wages, or for asking for too high
wages. Classical unemployment is also called real wageunemployment.
5. Seasonal unemployment
Seasonal unemployment exists because certain industries only produce or
distribute their products at certain times of the year. Industries where seasonal
unemployment is common include farming, tourism, and construction.
6. Frictional unemployment
Frictional unemployment, also called search unemployment, occurs when workers
lose their current job and are in the process offinding another one. There may be
little that can be done to reduce this type of unemployment, other than provide
better information to reduce the search time. This suggests that full employment is
impossible at any one time because some workers will always be in the process of
changing jobs.
7. Voluntary unemployment
Voluntary unemployment is defined as a situation when workers choosenot to
work at the current equilibrium wage rate. For one reason or another, workers may
elect not to participate in the labour market. There are several reasons for the
existence of voluntary unemployment, including excessively generous welfare
benefits and high rates of income tax. Voluntary unemployment is likely to occur
when the equilibrium wage rate is below the wage necessary to encourage
individuals to supply their labour.

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The Labour Market Equilibrium
The balanced situation where the supply of potential employees is equal to
the demand. When labor market equilibrium occurs, neither a labor excess nor a
labor deficit is observed in the job market, and pay scales tend to remain constant
as a result. Shown in the figure below:

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Reasons and problems of unemployment in Pakistan
The causes are endless and countless. But the major causes of unemployment in
Pakistan are as follows:
The Low industrial growth rate is 1.7 % in Pakistan. Number of industries are not
increasing in Pakistan. Lack of industries means less opportunities of employment.
A poor country uses backward techniques of production and labour intensive
technologies. But when it uses the advanced technology, they spread more
unemployment in the country.
Due to the mechanization of agriculture, there is less use of labour in the
agricultural sector. These unemployed persons move to cities to find jobs at a less
wage rate. Accordingly, use of modern techniques in agricultural sector is also a
further cause of unemployment and under employment.
Capital intensive techniques mean use of more capital and less labour in the
production process. The Population is very much in Pakistan, due to use of capital
intensive techniques of production they remain unemployed.
Deficiency of capital is an important cause of unemployment in Pakistan. Low
saving leads to low investments that result in low capital formation. If capital
formation is low its result is on unemployment. The Rate of capital formation is
only 5 % in Pakistan.

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If we talk about the private sector, then the employment level completely stopped
because their capital got shifted to other countries due to the nationalization of the
industrial units which really disturbed the investment industrial sectorof Pakistan.
The growth rate of population in Pakistan is very high and that is one of the biggest
causes of unemployment in Pakistan. The resources of Pakistan or of any country
are always limited and sadly Pakistan has exceeded the optimum level of their
resources.
Karachi is the biggest and an ideal place in terms of the industrial base of Pakistan.
Sadly, investors are not willing to invest in Karachi due to violence that has taken
over Karachi in the past few years.
Our education sectoris also one of the causes of unemployment in Pakistan. The
attitude of our young children towards the choice of a career is sheer unproductive
and unrealistic.
Pakistan has very limited facilities in the area of energy, infrastructure and also the
transportation system prevents investors to invest new industries.
Due to the current unfortunate situation of Pakistan, the number of industries is
very limited and at the same time number of graduates keeps increasing which
leads to an uprise of unemployment level.Government is not playing its part for the
country, because they are not doing anything in capital expenditures which
basically creates more jobs.
Another one of the biggest issues of Pakistani student is that whenever there comes
a new trend or a new technology, then everyone follows to study that specific
subject only rather than differentiating themselves they all follow the same pattern.
Later, when there are only 5-10 vacancies in that specific field the number of
graduates of that field are in thousands. This is the reason why not everyone gets
the appointment letter.
Nothing is being handled or organized in a correctway. The numbers of vacancies
are only few in numbers, but job seekers are countless every single day.

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There are a number of reasons why unemployment is so high in Pakistan. One of
the other reasons is the lack of quality of education in Pakistan. A student may
have a master’s degree with him, but when he walks into an office for his
interview, he lacks the confidence to carry himself in a formal conversation and in
the end so many students of this type are rejected and left unemployed!
Problems caused due to unemployment
To sum up the following are certain problems that an economy has to face due to
unemployment:
 Unemployment and poverty go side by side. The problem of
unemployment gives rise to the problem of poverty.
 Young people after a long time of unemployment find the wrong way to
earn money.
 To get rid of the unemployment stress, they accept alcohol or drugs.
 Unemployed youths accepts suicide as the last option of their life.
 Lower economic growth.
 Increase rate in Crimes. As the employed youth doesn’thave anything to
do they start doing robbery, murder etc.
 Health issues, i.e. it affects mentally as well as physically.

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Phillips Curve
The Phillips curve shows the relationship between unemployment and inflation in
an economy. Since its ‘discovery’ by British economist AW, Phillips, it has
become an essential tool to analyze macro-economic policy.
In economics, the Phillips curve is a historical inverse relationship between rates
of unemployment and correspondingrates of inflation that result in an economy.
Stated simply, decreased unemployment, (i.e., increased levels of employment) in
an economy will correlate with higher rates of inflation.
In the above diagram, we are showing a general relationship between inflation and
unemployment rate.

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So if we take the conceptof the Phillips curve into consideration, we will see that
there is an inverse relationship between inflation rate (which is defined as a
sustained increase in the general level of prices for goods and services.) and the
unemployment rate of an economy.
Explaining the Phillips curve
The curve suggested that changes in the level of unemployment have a direct and
predictable effect on the level of price inflation. The accepted explanation during
the 1960’s was that a fiscal stimulus, and increase in AD, would trigger the
following sequence of responses:
 An increase in the demand for labour as government spending generates
growth.
 The poolof unemployed will fall.
 Firms must compete for fewer workers by raising nominal wages.
 Workers have greater bargaining power to seek out increases in nominal
wages.
 Wage costs will rise.
 Faced with rising wage costs, firms pass on these costincreases in higher
prices.

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How to deal with the problem of unemployment
Following steps must be taken by the people and government to control the
problem of unemployment & under-employment:
1. Establishment of Employment Offices
There is not any single office for the information about employment
opportunities in Pakistan. More and more employment offices should be
established, these would cause in reduction in unemployment.
2. Population Control
Fast growth rate of the population should be controlled. Due to population
control there will be more employment opportunities and a reduction in
unemployment.
3. Capital Accumulation
Aggregate saving and investment should be increased to raise the level of
capital formation. This will result in promoting the level of income and
employment in the economy.
4. Growth of Industrial Sector
Government should provide basic infrastructure to established industries is
rural areas. Growth of the industrial sector is needed to reduce
unemployment.

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5. Growth of Agricultural Sector
Agriculture is the main sector of our economy. It provides more jobs to
population. It is necessary to establish it at commercial basis to provide more
jobs to unemployed.
6. Technical Education and Training
Technical education and training is necessary to produceefficient labour
force. The Total number of technical & vocational institutes is more than
1522 in Pakistan in 2010-11.
7. Provision of Self-employment
People and government should maintain self-employment. In this case the
government should provide them credit facilities.
8. Growth of Small-scale and Cottage Industries
Government should encourage the setting-up of small industries, particularly
in rural areas. Government should provide subsidies and infrastructure to
establish small industries.
9. Use of Labour Intensive Technologies
It is compulsory to use the labour intensive technologies to reduce the
unemployment.

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Unemployment rate in Pakistan
In this following section, we have taken into accountthe statistics of Pakistan’s
unemployment rate, from the year 1998 till 2013.
This statistical data emerges under three different governments which includes
Nawaz Sharif (1997-1999), Gen.Musharaf (1999-2008) and then Asif Ali Zardari
(2008-2013).
While seeing the above graph, we can see a near to the constant trend of
unemployment from years 1998 till 2008. But here, as we cross year 2008, we see
a drastic increase in the unemployment rate of Pakistan. This was becauseAsid
Zardari’s government came into power and faced many problems in stabling the
economy of the country. The government also faced challenges of political and
social challenges as well as problems of terror. Later on when the government
came to a stability, we can see a drastic decrease in the unemployment rate from
year 2010 to 2011. Furthermore, from 2011 till 2013 a slow increase in the
unemployment rate can be seen.

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Conclusion
Unemployment is a serious issue for any economy. It creates negative affects to
unemployed as they are jobless and suffer from worse prospects to find a new job
and those who are employed feel less secure to keep their jobs in the future.
However, for overall development of the economy, government and individuals
have to take initiative steps in increasing the productivity and improving the
standard of living.

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References
http://study.com/academy/lesson/what-is-unemployment-
definition-causes-effects.html (what it is and causes)
Source: Boundless. “Types of Unemployment: Frictional,
Structural, Cyclical.” Boundless Economics. Boundless, 21
Jul. 2015. Retrieved 07 Jan. 2016 from
https://www.boundless.com/economics/textbooks/boundless-
economics-textbook/unemployment-22/introduction-to-
unemployment-102/types-of-unemployment-frictional-
structural-cyclical-390-12487/
http://talibmag.com/causes-and-solution-of-unemployment-
problem-in-pakistan/
http://www.economicsonline.co.uk/Managing_the_economy/
Unemployment_types_and_causes.html