Unemployment and Inequality

Unemployment and Inequality: An Overview

Unemployment and inequality are closely related to each other. When considered from a larger point of view, unemployment is the reason and inequality is the outcome. Unemployment results in inequality when it continues for successive cycles. Unemployment, be it cyclical, structural or frictional, adds to the misery of the jobless workers. The unemployment insurance schemes are designed to support the families of the unemployed workers up to a certain period of time.

Unemployment and Inequality: An Overview

Unemployment and inequality are closely related to each other. When considered from a larger point of view, unemployment is the reason and inequality is the outcome. Unemployment results in inequality when it continues for successive cycles. Unemployment, be it cyclical, structural or frictional, adds to the misery of the jobless workers. The unemployment insurance schemes are designed to support the families of the unemployed workers up to a certain period of time.

However, once the insurance programs get expired, the jobless workers and their families find themselves in tremendous financial crises. To meet the day-to-day needs they resort to borrowing, which ultimately adds to their debt burden. The mounting amount of debt push the jobless workers more and more towards the debt trap. In case of cyclical unemployment, even the successive generations get into the debt trap. It results in widening of income gap between the employed and unemployed sections of population, thereby adding to the problem of inequality.

Unemployment rate is an important economic indicator for any country. High rate of unemployment indicates that an economy is not using its available resources in the best possible way. This in turn implies that the economy is not functioning on or above the production possibility frontier and there is a possibility of economic growth only if the available resources are utilized in an efficient manner.

The issue of wage disparity is crucial in this context. Workers may not be gainfully employed. There may be cases of excess labor in any sector of an economy. If marginal productivity falls with the addition of labor, then it causes disguised unemployment. In this case only the section of workforce, which is gainfully employed, gets the expected rate of wage. The wage level of the surplus workforce is bound to be much lower than the expected level. This wage disparity results in wide spread inequality across the different layers of the society.

 

Unemployment and Inequality: Economic Implications

Studies have revealed that unemployment has been the major reason of economic inequality in most of the developing and less developed economies of the world. The unskilled labors are the worst affected in all these cases.

According to many economists the economic reforms and deregulation of labor markets have contributed to a great extent to the problems of unemployment and inequality. The increased use of capital intensive technologies in the manufacturing sector has led to job shrinkage, which in turn has further aggravated the problem of inequality. The declining job security in addition with fractional job opportunities has acted as catalyst in spreading the perennial problem of inequality among the common mass.

How to Deal Unemployment and Inequality

Effective policy measures are supposed to bring about some positive changes in the economies that are plagued by high rates of unemployment and inequality. The governments both at the national and state levels need to take major policy reforms to increase the scope of productive employment. Proper utilization of available labor pool, greater participation rate, efficient channelization of labor and effective utilization of indigenous resources seem to be the major way outs in this context.