Report on Unemployment in Pakistan

Submitted to: Mr. Shazad

Submitted by:
 Ms. Nadia Anees (MBA-FA08-054)
 Ms. Khadija Mazhar (MBA-FA08-060)
 Ms. Zahira Raza (MBA-FA08-080)
 Ms. Maryam Munir (MBA-FA08-076)
 Ms. Hira Kulsoom (MBA-FA08-052)

Submission Date: May 2010

Course: International Business and world trade

Table of Contents Page no.

Acknowledgement 2

Executive Summary 3

Unemployment 4

Types of unemployment 4
 Voluntary
 Involuntary
 Structural
 Frictional
 Cyclical
 Classical
o Long- term

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 o Short-term
o Hidden
o Under employment

Full Employment and the Natural Rate of Unemployment 7

The cost of unemployment 8

Okun’s law 8

Measuring unemployment
 Rate of unemployment
9
 Unemployment rate in the world
 Country Comparison

Causes 12

Factors 13

Consequences
19

Recommendations
23

References 25

Acknowledgement
First of all, we would like to offer our eternal thanks to the Almighty Allah who blessed us with
the perseverance and the spirit of hard work to complete this project. We are also grateful to our
parents for their patience and belief in us. We offer our respectful gratitude to our International
Business and World Trade course supervisor Mr. Shazad for his guidance & encouragement.
We would like to thank all of those people specially those who helped us through our Project.

Group One

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 May 12, 2010

The University of Faisalabad

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Executive Summary

During our semester we were assigned the project of Unemployment, where we had
conducted detail research through limited resources

In this report, basically different types of unemployment is defined and how have they
come to existence and also the causes of unemployment along with the factors of
unemployment where detail research of Pakistan environment had been conducted

Here through statistical data and graph unemployment rate is defined as well as to
calculate and also defining the position of our country in the data of world
unemployment.

In the end of the report we have define the consequences of unemployment where most
of the effects are covered such as individual, social, economic and physcological.

By analyzing the report we have given recommendations to overcome unemployment.

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Definition:
Unemployment is a macroeconomic phenomenon that directly affects people. It is
the state in which a person is without work, or currently seeking work. Mostly, this
problem occurs in developing countries of the world, which not only effects socially but
also psychologically. When a member of family is unemployed, the family feels that it in
loss of income and a reduced standard of living. It is a central problem because when
unemployment is high, resources are wasted and level of income falls.

Types of Unemployment
As unemployment is the general term that describes people who wish to work but
are unable to find job, there are number of specific types of unemployment but three
common and most important typology of unemployment are; structural unemployment,
frictional unemployment and cyclical unemployment as well as classical unemployment.

Voluntary Unemployment

There are some persons in society who various reasons prefer to be jobless even
though they have a possibility of getting a job; some have the desires to have jobs only
of their liking or in search of getting better remuneration than their early jobs and
henceforth they prefer to remain unemployed. Hence frictional unemployment is
voluntary as it reflects individual behavior.

Involuntary Unemployment

Involuntary unemployment is a situation where a person is physically and mentally fit to

work and also willing to work at existing wage rate, but does not get a job. He is forced
to remain idle even if he is willing to work. Structural unemployment, cyclical
unemployment and Classical unemployment are involuntary in nature. The existence of
Structural unemployment may reflect choices made by the unemployed in the past,
while Classical unemployment may result from the legislative and economy choices
made by the labor unions or political parties. But the clearest case of unemployment are
those where they are fewer job vacancies than unemployed workers even when wages

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can be adjusted and vacancies filled but still there would be unemployed workers which
is the case of Cyclical unemployment.

Structural Unemployment

It is a form of unemployment which results from a mismatch between the sufficiently

skilled workers seeking employment and demand in the labor market. Even though
number of vacancies maybe equal to number of unemployed, the unemployed workers
may lack the skills needed for the jobs, or may not live in that part of the country, where
jobs are available.

It is a result of the dynamic labor market and the fact that these can never be as
flexible. Workers are left behind due to costs of training and moving (Based on
geographic location), plus inefficiencies in labor markets, such as monopoly power as
well as inefficient in skills.

Causes of Structural Unemployment are:

Technology Unemployment

This sort of unemployment is caused by change in technology and can lead to a

reduction in demand for workers with particular skills which leads to downsizing
because of advancement.

The best example is VCR player, Back in the 90’s the VCR was the pinnacle in
recording technology; video rental stores exploded into business overnight because of
the popularity of the VCR and its tapes. However, with the introduction of the DVD
player, people quickly abandoned the VCR. People who were in factories manufacturing
VCRs suddenly found themselves without a job. If nobody wanted a VCR, then people
who owned and ran video rental stores also quickly found themselves out of business;
consumers didn't want to rent tapes anymore, they wanted to borrow DVDs. The loss of
a manufacturing job represents structural unemployment because DVD technology
rendered the VCR obsolete. People who found themselves out of a job or business due
to lack of video rentals are also considered to be structurally unemployed because
nobody wanted to rent tapes, consumers wanted to rent DVD disks. Also, people who
have skills that are no longer useful or that could be replaced with a machine could be
structurally unemployed. One of the most famous examples of this is bank tellers.
Before the invention of the ATM, for those of us who can remember, the only way to get
your money in and out of a bank was by walking into a branch and interacting with a live
person. The ATM changed all of that, since now you could just walk up to one in your
local grocery store or pull up to your ATM drive through at your bank. You technically
wouldn't ever have to interact with a bank teller again after setting up your account, and

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even then you might not have to, since more and more banks are offering the ability to
open accounts online.

Seasonal Unemployment

It is a type of unemployment that is not in demand at certain season, it is linked to

certain kind of job which aggregate economic activity or environment.

The Tourist industry is notoriously season even school holidays and weather patterns
means that demand is higher at certain times of the year.

Example: Agriculture, There is an increased demand for labor at the time of sowing,
harvesting, weeding and threshing. In between there is little or no demand for labor.
Agricultural labors find themselves unemployed during that period.

Structural unemployment is categorized as long term unemployment.

Frictional Unemployment

Frictional Unemployment occurs when a worker moves from one job to another while he
searches for his job then he is experiencing frictional unemployment. Also, when a
person resigns from a job, without securing another job and frictional unemployment
rates is highest when young people (fresh graduates) are hopeful about getting a new
job. They may change a few jobs in a year.

It is an example of productive due to increasing both the workers long-term welfare

and economic efficiency.

Cyclical Unemployment

Cyclical Unemployment is also known as Keynesian unemployment as well as demand

deficit unemployment, it occurs when there is not enough aggregate demand in the
economy.

This is the type of unemployment that many people are experiencing today.
People who are cyclically unemployment are the ones who get laid off from their job due
to a failing economy. Cyclical unemployment is the result of a lack of demand for
products; when people stop buying things employers don’t’ have any money to pay their
workers and thus, they have to lay them off. Cyclical unemployment gets its name from
the business cycle, which has four phases, a peak, a recession, a trough, and an
expansion. From there, it just repeats. All businesses, and nations for this matter, go
through this cycle. (The cycle is unavoidable, but effect, impact, and result of it can be
altered and managed.) Cyclical unemployment begins occurring at the start of a
recession and generally ends at some point in the expansion phase.

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Classical Unemployment

Classical or real wage unemployment occurs when real wages for a job are set above
the market-clearing level causing the number of job seekers to exceed the number of
vacancies. If the quantity demanded for labor is too low, than the price (wages) must fall
until the market clears.

This is often ascribed to government intervention as with the minimum wage or labor
unions.

Long-term Unemployment

They are those people who have been unemployed for longer than 12 months (more
than one year).

Short term Unemployment

They are those people who have been unemployed for six months or less.

Hidden Unemployment

Hidden or covered unemployment is the unemployment of those workers which are not
reflected in official statistical data of the country. In most of the country, those who are
looking for the job are said to be unemployed. But not to those who have taken early
retirement to avoid being laid off but they would have preferred working if they would
have been given opportunity. The statistic data also does not count the underemployed.
Because of hidden unemployment, official statistics often underestimate unemployment
rates.

Underemployed

This word is referred to people who are working less than full-time hour but they would
like to work longer hours and even seasonal jobs are also counted as
underemployment.

Full Employment and the Natural Rate of Unemployment

The term full employment means everybody is working. And indeed, full employment
refers to an economic situation in which unemployment is very low. However, when the
economy is at full employment there is a still small amount of normal unemployment.
This unemployment exists because people are always changing between jobs creating
frictional unemployment. Similarly, when new workers enter the labor market, they do
not immediately gain jobs. Instead, they must search for jobs, even if only for a short
period of time. There is to be some unemployment even when the economy is
theoretically at full employment.
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The natural rate of unemployment is the rate of unemployment that corresponds to full
employment. Economists theorize that this is around 6% unemployment due to frictional
unemployment and structural unemployment. Cyclical unemployment causes a slight
variation above and below this natural rate. In general, the economy is said to be
operating at full capacity when the unemployment rate is at the nature rate of
unemployment. Similarly, when the unemployment rate is below the natural rate of
unemployment, the economy is said to be operating above full capacity. Finally, when
the unemployment rate is above the natural rate of unemployment, the economy is said
to be operating below full capacity.

The Costs of Unemployment

Unemployment determines the economic and social stability of any society. People rely
on their income to maintain their standard of living; the loss of a job will often directly
threaten to reduce that standard of living. This creates a number of emotional problems
for the worker and the family. In terms of society, unemployment is harmful as well.
Unemployed workers represent wasted production capability. This means that the
economy is putting out less goods and services than it could be producing. It also
means that there is less money being spent by consumers, which has the potential to
lead to more unemployment, beginning a cycle. However, in general, while
unemployment is harmful for individuals, there are some circumstances in which
unemployment is both natural and beneficial for the economy as a whole.

Okun’s Law

An economist named Arthur Okun looked at the relationship between unemployment

and national output over the past 50 years. He noticed a general pattern and stated an
equation to explain it. His equation, Okun's Law, relates the percentage change in real
GDP to changes in the unemployment rate. In particular, the equation states:

(The percentage change in real GDP) = 3% - 2 x (change in unemployment rate)

This equation basically says that real GDP grows at about 3% per year when
unemployment is normal. For every point above normal that unemployment moves,
GDP falls by 2%. Similarly, for every point below normal that unemployment moves,
GDP rises by 2%.

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Measurement of Unemployment
Many people care about the number of unemployed, economists typically focused on
the unemployment rate. Due to normal increase in the number of people employed
which leads to increase in population and increase in the labor force relative to the
population.

As defined by the International Labor Organisation, “unemployed workers” are those

who are currently not working but are willing and able to work for pay, currently
available to work, and are actively searching for work.

Since not all unemployment may be open and counted by government agencies, official
statistics on unemployment may not be accurate.

The ILO describes four different methods to calculate the unemployment rate:

 Labor Force Sample Surveys are the most preferred method of unemployment
rate calculation since they give the most comprehensive results and enables
calculation of unemployment by different group categories such as race and
gender. This method is the most internationally comparable.
 Official Estimates are determined by a combination of information from one or
more of the other three methods. The use of this method has been declining in
favor of Labor Surveys.
 Social Insurance Statistics such as unemployment benefits are computed base
on the number of persons insured representing the total labor force and the
number of persons who are insured that are collecting benefits. This method has
been heavily criticized due to the expiration of benefits before the person finds
work.
 Employment Office Statistics are the least effective being that they only include
monthly tally of unemployed persons who enter employment offices. This method
also includes unemployed who are not unemployed per the ILO definition.

According to Labor Force Survey 2008, the rate of open unemployment was 13.6% and
15.2% as per Labor Force Survey of 2009. This indicates that rate of unemployment
has increased between these two surveys by 1.6% officially but unofficially
unemployment is much larger than this rate.
Rate of unemployment is measured by this formula

Formula

Total unemployment
Rate of Unemployment = *100
Total working population

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The current rate of unemployment is at somewhere around 7.4 percent with substantial
underemployment.

Unemployment rate is shown by the figure1 and table1

Unemployment Rate
16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2003 2004 2005 2006 2007 2008 2009 2010

Figure1

Ran
Year Unemployment rate Percent Change Date of Information
k
2003 7.80 % 119   2002 est.
2004 7.70 % 122 -1.28 % 2003 est.
2005 8.30 % 75 7.79 % 2004 est.
2006 6.60 % 65 -20.48 % 2005 est.
2007 6.50 % 72 -1.52 % 2006 est.
2008 5.60 % 71 -13.85 % 2007 est.
2009 7.40 % 92 32.14 % 2008 est.
2010 15.20 % 152 105.41 % 2009 est.

Table1

Source: CIA World Fact book as of February 19, 2010

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Country Comparison

Country Unemployment rate (%) Rank

Pakistan 7.4 103

Japan 4.0 152

United Kingdom 5.6 131

United States of America 7.2 107

India 6.8 113

Germany 7.8 94

Russia 6.4 116

China 4.0 153

Afghanistan 40 15

Iran 12.5 57

As the rank of the country increase, unemployment rate decreases.

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The Causes of Unemployment

There are four basic causes of unemployment in a healthy, working economy. These
reasons for unemployment are: minimum wage laws, labor unions, efficiency wages,
and job search. In the real world economy all four of these forces work together to
create the unemployment that is reflected in the unemployment rate.

Minimum Wage Laws

In microeconomics, we learned that in an efficient market, the price of good changes to

equilibrate the quantity demanded and the quantity supplied. The labor market, in its
natural form, is just like any other market. If there are unemployed workers who want
jobs, the price of labor or the wage will simply drop until all of the labor force is
employed. That is, this would happen if there were not government intervention into the
labor market. In order to help maintain a certain standard of living among all workers,
the government implements a minimum wage, which artificially inflates the wages of the
workers at the bottom of the wage scale above what the firm would normally pay at
equilibrium. This in turn causes the people above the minimum wage workers to
demand more pay and for the people above them to do the same. Eventually, the
minimum wage causes the wages of all workers to increase above the market-clearing
level. When the wage demanded is greater than the wage offered, workers earn more;
but in response firms will cut jobs to recoup the money they are losing, increasing
unemployed workers. Raising the minimum wage therefore also increases
unemployment.

Labor Unions

A second, and closely related, cause of unemployment lies with the actions of labor
unions. Labor unions are collectives of workers who rally together for higher wages,
better working conditions, and more benefits. These unions force firms to spend more
money on each worker, some in the form of wage and some in the form of benefits.
Overall, this has an effect similar to the minimum wage law, where workers are
demanding wages greater than the firms are willing to pay. Again, this raises the wages
of workers above the market clearing level and creates a situation in which there are
more people who want to work at the wage than there are firms who want to hire at the
wage. In this way, labor unions increase the wages and benefits of workers who are
employed, but may simultaneously increase the number of workers who are
unemployed.

Efficiency Wages

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A third reason for unemployment is based on the theory of efficiency wages. The basic
idea behind efficiency wages is that firms benefit by paying their workers above the
equilibrium wage, since higher wages produce happier, healthier, and more productive
workers, and may even increase worker loyalty. But, when the firms pay efficiency
wages that are above the equilibrium level, they also create an excess in the labor
supply: more people want to work for the wage than there are positions. Efficiency
wages, like the minimum wage and labor unions, therefore increase the wages for
workers who are employed but also increase overall unemployment.

Job Search

The fourth cause of unemployment, job search, is unrelated to the labor market.
Instead, it is based on ideas similar to the frictional, structural, and cyclical
unemployment discussed earlier. When a person decides that he wants to work, he
cannot simply become employed. Instead he must find a job. This job search often
takes a bit of time. During the process of looking for the right job, the person is
considered as an unemployed member of the labor force. Simply looking for a job or
moving from one job to the next causes some unemployment.

Unemployment is in reality much more complex than the average consumer

appreciates. For this reason, most people do not understand that some unemployment
in the economy is not a problem. In fact, unemployment of certain low levels indicates
that the economy is functioning neither above nor below its potential output level, at a
sustainable level.

Factors of unemployment:
Poor Governance:

Good governance is an essential pre-condition for employment as it establishes the

enabling regulatory and legal framework essential for the sound functioning of land,
labor, capital and other factors of market. Whereas, good governance is considered to
be non-existent in Pakistan and poor governance is taken one of the key underlying
causes of unemployment in Pakistan.

Lack of Education:

The country’s education indicators portray a dismal picture when compared with other
countries. More specifically, the public expenditure on education has been around 2% in
Pakistan compared to other (low income) countries of the region. Science, foundation of
any development in socio-economic sector is corollary to the level of education / skills of
its human capital therefore, general perception that one of the main causes of the
unemployment in Pakistan is pitiable state of education across the country.

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 It all boils to the primary or basic education in Pakistan about which little attention has
been paid and which continues to deteriorate. Budgetary allocations are very small for
such an important sector with the result that we are unable to produce quality graduates
at a tertiary level. The curriculum is outdated and the teachers too are pathetic. Unless
we don’t have a plan to improve basic education we can’t expect quality graduates
being churned out at the tertiary level.

Backwardness of Agriculture sector:

The biggest reason of unemployment in Pakistan is concerned with the backwardness

of agriculture sector. Agriculture is the biggest sector of our economy that contributes
20.9% to GDP and 44% people get jobs from this sector directly or indirectly.
Unemployment in this sector is from two sides.
First is due to the adoption of latest machinery and capital intensive technology.
Due to this, demand for labor has been decreased. Second is the backwardness of this
sector. There is less availability of fertilizers, pesticides, and quality seeds, absence of
land reforms and lack of agriculture education. Due to all these factors agriculture sector
is not expanding and there is general and disguised unemployment.

High production cost in all sectors:

High cost and low quality are responsible for less demand for our agricultural and
industrial items. Because of less demand of such kinds of goods both the domestic and
international producers are losing their interest in production. That’s why people are
becoming unemployed.

Poverty:

Millions of people in Pakistan are poor. Due to poverty people are overburdened with
expenditures and their savings are very low. It is said that for the reasonable growth of
economy saving rate should be at least 25% in any country, but in Pakistan it is only 13
to 14% which is very low. Low investment level is due to fewer saving, ultimately there
is unemployment.

International economic crises:

Current international financial crisis is one of the biggest reasons of unemployment in

Pakistan and in the whole world. This crisis originated from the banking sector of USA,
UK and some European countries and is now a global phenomenon.

Non-Transparency in Resource Allocation:

The lack of transparency in public sector planning, budgeting and allocation of

resources in Pakistan has been the hallmark of our financial resource planners and
policy makers. Political or the ruling leadership has never responded to the real needs
of the populace and accountable to the promises they made with the public. Resultantly,

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without having regards of the real stakeholders or the potential beneficiaries, the
priorities for the development were determined by the bureaucracy.

High domestic loans:

Since 1947, Pakistani rulers got loans from IMF, World Bank and many other sources.
Such loans were not utilized honestly. Current external debt of Pakistan is more than 50
billion dollar. Government has to allocate a big amount for the repayment of loans with
interest. So due to less resource for developmental projects there is unemployment.

Political Instability:

Political instability is one with the successive governments failing to come up with any
substantial plan to tackle growing unemployment. There is a vicious cycle of
unemployment and the mandarins at the top don’t have a clue as to how to reduce it.

Low investments:

Fiscal and monetary policies are also responsible for unemployment. In view of fiscal
policy, Pakistan has fewer funds to invest in job providing projects. Every annual budget
shows deficit. Through the monetary policy if the government increases the rate of
interest, it discourages the investors from getting loans.

Political instability, bad law and order situation, army’s interference, bomb blasts,
terrorism, inconsistent economic policies etc are the factors which are disturbing
domestic and foreign investment. Pakistan investors are taking away their money to
Dubai and other countries of the world

Corruption & Corrupt practices:

Corruption is one of the most dangerous factor that eroded Pakistan’s economic and
governance system since its inception. In 2008, Pakistan was ranked as the 46 th most
corrupt country out of the 180 countries of the world. The persistently rampant
corruption in Pakistan not only jeopardizes its resolve to fight against unemployment
rather adding to the menace of unemployment from all direction .

Poor tax generation:

In Pakistan, tax system is not satisfactory. Ratio of direct taxes is more than indirect
taxes. Tax evasion is common. Due to less income from the taxes, government cannot
start developmental projects. If there is no investment, then from where public would
find jobs. On the other side if government takes step to increase indirect taxes, it would
also affect investment and ultimately employment level.

Nepotism:

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Nepotism at every level in Pakistan has polluted the environment both
socioeconomically and psychologically, the employee who suits the jobs best is kept
deprived to flourish his abilities. Pakistanis Perceive Nepotism to be one of the Top.
According to Gilani Research Foundation Most Causes for Unemployment have found
out by a survey carried by Gallup Pakistan, the rate of unemployment, according to
them is more than half of all Pakistanis (69%), has increased in the last few years. They
believe it is caused not only by poverty of the economy but is also a result of the
existing culture of nepotism. Socially, unemployment is also considered to have a
negative effect as 60% claim that it increases crime rate. Increase in poverty, lack of law
& order, delayed marriages, and migration for jobs are some of the other cited effects of
unemployment on the society. Nepotism rate is 49% in Pakistan.

Globalization:

The term 'globalization' is multi-dimensional. It has economic, social, cultural and

political connotations. It is defined as a process of rapid economic integration among
countries driven by the liberalization of trade, investment and capital flows, as well as
technological change. Globalization has become a hotly debated subject in recent
years. The impact of globalization on growth rates of output, foreign trade and
investment, and the effect of this increase on unemployment in Pakistan. It has further
increased the menace of unemployment in two basic ways
a. Brain drain
b. Global recession

Social order:

In Karachi, Baluchistan, Punjab and almost every parts of the country supplemented
with war against terror has retarded Pakistan production process. The worsening
situation is affecting the social order as a whole and adding to uncertainties in business
circles, thereby increasing unemployment in the country. However the problem of
unemployment is creating a big loses socially and psychologically to persistent
involuntary unemployment bring.
Although unemployment has plagued capitalism, the Industrial Revolution,
understanding its causes and costs has been possible only with the rise of modern
macroeconomic theory. It is apparent that recessions and the associated high
unemployment are extremely costly to the economy.

Population Growth:

Due to rapidly increasing population the problem of food shortage in most developing
countries are compounded by inadequate provision of basic services such as health
and sanitation facilities, shelter and safe drinking water, also lack of education and
increasing unemployment .Owing to shrinking developmental funds visa vise population
growth. Resultantly the phenomenon gives further rise to the unemployment rate.
Pakistan's population is growing at a high rate. The high rate of population put a lot of
burden on the resources of the country. Most important thing is educating and providing
skills to the growing population, without which the target of employment can't be
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reached.

Privatization:

It is yielding opposite results then the intended ones. National assets are going in to
foreign hands, companies are monopolizing their ownership, they downsize and do not
except the existing criteria, thereby playing a solid role in unemployment. The process
of privatization of all sorts of government and semi government organizations started in
Pakistan around 1998, and today it is spreading fast and is affecting the lives of many in
developing countries around the globe.
Privatization of land is the most important issue in this regard. Most of our land is owned
by government and army in Pakistan. The land should be privatized first if they want to
start privatization in the country. So much land is bound by the army and our farmers
and peasants are suffering. After the government and army the third monopoly of land
owners is that of the big landlords who own large chunks of land in rural areas and the
people are dependent on them for their livelihoods. This gives them political power and
control over the resources.
During Zia-ul-Haq regime the landlords were given more power and incentives by
introducing contract system. The speakers suggested that if they want to privatize the
business institutes the first thing to be privatized should be the land owned by the
government and army and then the factories owned by the military.
 There are no set rules and regulations for privatization of factories in Pakistan. Definite
laws are not made for the process of privatization and hence the system is not
transparent. Whenever the government privatizes any corporation or organization, every
time they give new reasons for privatization which shows that the rules are changed and
modified accordingly for every case. The industries that are being denationalized should
be renationalized and the land to be distributed among the farmers to promote
agriculture sector.

Declining Foreign Investment:

Owing to number of factors Pakistan has not been able to attract needed level of FDI
(Foreign direct investment) despite its pro liberalization and investor friendly policies.
These factors include; political instability, rising trend in terrorism, social disorder and
unsatisfactory law and order situation particularly in the, city of Karachi, the largest
industrial and commercial centre and the only port of the country, thus feeding the
unemployment rates. Foreign Direct Investment (FDI) is considered a vibrant tool for the
growth of income and employment, technological advancement, socio-economic
development parallel to improve income distribution or poverty reduction especially for
the developing countries of the world like Pakistan.
Country’s economic policies should be attractive enough for FDI to have positive
(negative) impact on poverty alleviation (income inequality) .In empirical psychology,
results reveal that increased FDI in Pakistan worsens income distribution because it is
focused towards capital intensive industrial and services sectors of urban localities.

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Economic growth also makes income distribution more unequal following upper echelon
trend. Relation between income distribution and trade-openness according to Leontief
paradox i.e. more trade promotes rich class more. Inflation has progressive impact on
income inequality. Government size is associated negatively with income distribution
showing exploitation of poor segments through elite class. Unemployment also raises
income inequality but moderately. Finally, improvement in agriculture activity decline
income inequality and improves the incomes of rural class.
Policy recommendation reveals that there is a need to revise macroeconomic policies
to attract more FDI in the country. Country can get more benefits from FDI if it is
converted towards agri-based industrial sector. This not only improves the incomes of
skilled labor but also enhance the income levels of unskilled personals. This shows that
there is a huge need to train unskilled labor for its absorption in various employment
opportunities

Energy crises:

Leading example in this case is the textile industry of Faisalabad, where almost 70% of
growth has been jeopardized because of energy crises thereby increasing
unemployment. Energy resources have depleted! Whatever resources are available are
simply too expensive to buy or already acquired by countries which had planned and
acted long time ago. Delayed efforts in the exploration sector have not been able to find
sufficient amounts of energy resources. Nations of the world which have their own
reserves are not supplying energy resources anymore; only the old contracts made
decades ago are active. Airplanes, trains, cars, motorbikes, buses and trucks, all modes
of transportation are coming to a standstill. Many industries have closed due to
insufficient power supply. Price of oil has gone above the ceiling. At domestic level,
alternate methods like solar, biogas and other methods are being tried for mere survival.

The above is a likely scenario of Pakistan and around the globe after 25 years sustains
the targeted GDP growth rate of 6% by the government. Pakistan’s energy
requirements are expected to double in the next few years, and our energy
requirements by 2015 is likely to cross 120MTOE. By 2030, the nation’s requirement will
be 7 times the current requirement reaching 361MTOE. In this way it is important to
keep eye on the energy crises and to solve these problems in order to resist
unemployment.

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Conclusions
ECONOMIC EFFECTS:

 Deflationary Pressures
 Decreased Growth
 Increased Crime and Social Strife
 Increased Government Spending
(1) Deflationary Pressures
Less money in the economy means that consumers purchase a lesser
amount of goods and services. Producers experience a decrease in the demand for
their products and so they lower their selling prices to avoid having surplus stock;
the price level falls.

(2) Decreased Growth

Increased unemployment usually coincides with a decrease in the growth of
GDP, since less people are now working in production, so presumably less goods
and services are being created in the economy.
(3) Increased Crime and Social Strife
Households that were previously on the margin of earning enough to just
get by now don't earn enough money. Crime becomes more attractive as an
alternate to working or as a way to find a little more money. Financial troubles cause
households more stress, which can have negative effects, such as increased family
violence.
(4) Increased Government Spending
If there is unemployment insurance (unemployment benefits) in an economy,
the Government would now have to spend more to support those households
without income. Unemployment Insurance falls under the category of 'transfer
payments' in the circular flow model.

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PSYCHOLOGICAL EFFECTS:

 Personality
 Socio-political attitudes
 Differing attitudes
 Children and youth

(1)Personality

Unemployment leads to increased instability in the unemployed and lowers their

morale. Movie attendance is increased, and personal habits may be somewhat modified.

(2)Socio-political attitudes

Attitudes affected by unemployment are Moral, religious, and political attitudes.

Clear-cut changes are few.

(3)Differing attitudes

Differing attitudes caused by unemployment and related factors. Individual

attitudes are typed as the unbroken, the broken, and the distressed. Attitudes of people on relief
and government are considered. Factors related to differing attitudes are mentioned.

(4)Children and youth

Unemployment affects children and youth. Children show changes in stability and
school work; problems of youth are discussed.

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INDIVIDUAL EFFECTS:

 Loss of income
 Falls in real living standard
 Loss of self-esteem
 De-skilling and de-motivation
 Increased health risks

(1) Loss of income

The biggest loss for an unemployed person is no doubt is his income. The
means of income is disclosed and the person has to suffer the problems.

(2)Falls in real living standard

When there is no income of an unemployed person, obviously his living

standards falls down. He is unable to compete with the fast growing living standards.

(3)Loss of self-esteem

For the unemployed person, unemployment can lead to depression, low self-
esteem and homelessness. He started avoiding his own family member, he interacts
with them very little to avoid their questions and demands.

(4)De-skilling and de-motivation

While work, a person gains experience by utilizing his skills and abilities but if a
person is unemployed and has nothing to do, in this way his skills has been wasted and
this frustration leads his towards de-motivation. Sometimes on losing jobs, people are
forced to take up jobs that do not befit their skills, experience and educational
qualification.

(5)Increased health risks

 Stress caused by the family’s responsibilities leads to depression. Studies

indicate that depressed phase results suicide. The suicide and attempted
suicide rate of unemployed men was 20 times higher than that of
employed men.

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  Reduction in quality of diet due to loss of income. Studies indicate that
children of the unemployed are not as tall as those of the employed
people.

SOCIAL EFFECTS:

(1)Low morale values

Unemployment among youth not only causes current hardship, but may also
hinder low morale values. This is because unemployed youths are not able to gain
experience and on-the-job training and because a history of joblessness signals that the
individual may not have the qualities that are valued in the labor market.

(2)Security threats

 Job security: If unemployment rate is high then the employees faced a

job security threats. If employer is not happy with the performance of his
employee then he has better options in the market to replace their existing
employees.
 Shelter security: unemployed person’s home is always on alarming
stage, this is the last stage of helplessness when a person has to sell his
home to support his family. Secondly, if a person is fired from his job then
the residential facility has been taken back from that person.

(3)Increase crimes

Unemployment has direct relation with crime rate. Increase in unemployment

results in increasing crime rates. With people unable to find jobs they find criminal ways
of making money. However, the overwhelming abundance of research directed at crime
and unemployment views the issue from the starting points of poverty, education, and
unemployment as the causatives.

(4)Family breakdowns

In some circumstances, the loss of financial responsibility among husbands may

lead to discontent within the marriage, unemployed husbands are more likely to have
disagreements and arguments with their spouses than are employed husbands, and
this has the potential to lead to spouse abuse and marriage dissolution.

(5)Alcoholism

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 Stress-based and socio environmental theories of alcoholism coupled with
empirical research on the health and social costs of unemployment have suggested that
the unemployed may be "at risk" for abusing alcohol. Specifically, the unemployed are
said to abuse alcohol as a means of coping with financial stress triggered by job loss.
Research on job loss and alcohol abuse has been beset by methodological problems.

Recommendations

1. Good governance

 Economic Growth

Govt. should make efforts to push economic growth process. For this purpose
Economic Revival Package should be announce for the revival of industries
sector, to stimulate production and investment.

 Exports

Government should seriously try to boost exports through broadening the

tax base and lowering tariffs.

 Agriculture Sector

Govt. should announce a package for the development of agriculture

sector.
 Check and balance

The government should make separate organization body of checks and

balances for employee security and their rights.

2. Education

Education plays an important role in reducing the unemployment. The

emergence of secondary education caused by the rise in big businesses and
technological advances in factories (for instance, the emergence of
electrification), that required skilled workers. In order to meet this new job
demand, high schools were created and the curriculum focused on practical job
skills that would better prepare students for white collar or skilled blue
collar work. This proved to be beneficial for both the employer and the
employee, because this improvement in human capital caused employees to
become more efficient, which lowered costs for the employer, and skilled
employees received a higher wage than employees with just primary educational
attainment.

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3. Transparency in resource allocation

The organization must defines the concept of openness in every area of

business, explaining its role in the global economy and revealing how
transparency in the resource allocation can be leveraged to give companies a
competitive edge. Hence, leads the resource allocation smooth and effective.

4. Stable political government

Political instability, bad law and order situation, army’s interference, bomb blasts,
terrorism, inconsistent economic policies etc are the factors which are disturbing
domestic and foreign investment. Stable government and political structure make
trust of foreign and local investors and more the investment more will be
employment.

5. Advanced skill refresher courses

Provide skill training to the new entrants to the labor force and improving their
skill level of the work force. Organize Skill training as per the market demand.
These type of courses should be organized for both private and government
sector.

6. Broadly defined internal security plans

Effective human resource policies and procedures enhance an organization's

internal security plans and environment. These policies and procedures should
address hiring, orientation, training, evaluations, counseling, promotions,
compensation, and disciplinary actions. In the event that an employee does not
comply with an organization's policies and procedures or behavioral standards,
an organization must take appropriate disciplinary action to maintain an effective
control environment.

7. Security of investors

Investment also plays an important role for the employment of the country. The
more the investments lower the rate of unemployment. As it increases the
opportunity and it also open new doors for jobs and requirement of skilled and
unskilled labor. So investor security must be insured by the Government to give room
to foreign investor. As more the investment more will be the employment.

8. Self-Employment Schemes

With a view to reduce educate unemployment; self-employment scheme should

be encouraged in true manners.
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References
http://en.wikipedia.org/wiki/Types_of_unemployment

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2129rank.html?
countryName=Japan&countryCode=ja&regionCode=eas&rank=51#ja

http://www.indexmundi.com/g/r.aspx?t=0&v=74&l=en

http://www.indexmundi.com/pakistan/unemployment_rate.html

http://www.scribd.com/doc/2442169/Chp-11-Unemployment

https://www.cia.gov/library/publications/the-world-factbook/fields/2129.html?
countryName=Pakistan&countryCode=pk&regionCode=sas&

http://en.wikipedia.org/wiki/Structural_unemployment

http://www.scribd.com/my_document_collections/2420342

(Psyche INFO Database Record (c) 2009 APA, all rights reserved):

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