Universitatea Transilvania din Brașov

Facultatea de Știinte Economice și Administrarea Afacerilor

Business Administration 2017

MACROECONOMY

Professor: Daj Alexis

Student: Sara Karaman

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 Causes and social effects of unemployment in
Romania

Introduction

This project is trying to explain unemployment as an imbalance in the labor market.

The existence of unemployment is the convincing proof of the inability of society to use the most
important factor of production: man
The problems that we will deal with are the events that are causing this phenomenon, the effects
these have on the Romanian economy, and how to avoid or improve everything.
These aspects must be considered in order to avoid imbalances on the labor market and the goods
market.
The goods market depends on the labor market, since the labor force is considered the production
factor for goods and services.

Firstly, we will distinguish the theoretical concepts so that they can help us later in further
explanations. The plan provides an analysis of the reasons leading to such a phenomenon, a
description of the types of unemployment, an idea of the unemployment level and dynamics, a
graphical explanation of the Phillips curve and some measures to combat unemployment.

Theoretical terms

Of the many imbalances and disturbances with which society today is confronted, in recent
decades, unemployment is an important factor.

The labor market will decide how much work is demanded and offered in an economy. This is
where labor demand and the job offer meet. The customer is the employer, the worker "rents",
the supplier is the employee and the price is the wage.
The labor market includes only the labor which can be utilized on the market, provided that it is
made available to third parties for a fee. The workload of self-employed persons is eliminated.
Labor demand is the demand needs, which is formed at a given time in the market economy.
This demand is expressed by the number of jobs.
The work offer includes the work offered by a given population under wage conditions. The
housewives, the students, the militia and other working persons without salary are not part of the
job offer.

Unemployment is a contemporary phenomenon affecting all countries of the world, in different

proportions and with different effects

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Unemployment is, in general, the state of the labor market characterized by a greater supply of
labor compared to labor demand

The representatives of the classical and neoclassical school, but especially Keynes, dealt with
these aspects of unemployment.

Unemployment is a complex phenomenon that includes not only economic aspects but also
social, political, psychological and moral elements.

Unemployment means both the loss of wages that affect the well-being of the person and the loss
of self-confidence, which leads to the threat of social stability.
The International Labor Office defines the unemployed as any person who is 15 or more and
fulfills the following conditions simultaneously:
 he is capable of work
 he does not work,
 it is available for paid or unpaid work,
 he is looking for a job.

In Romania, the social protection of the unemployed is governed by Law No. 76/2002. This
determines the conditions by which an unemployed person can be considered.
Unemployment can be seen as a negative state of the economy in which part of the paid work is
not used.

2. Causes of unemployment
The causes of unemployment are equal to the causes of underemployment or with the imbalance
between labor demand and the supply of labor.
Unemployment can be explained by classical, Keynesian or neoclassical concepts.

2.1 Classic explanation

In the classical conception, the equilibrium of the labor market is achieved at a certain price
level. All those who are in agreement with the existing Reallöhne can find a job. The
unemployed are the ones who want more than the existing Reallohn. Thus, the classical analysis
assumes only voluntary unemployment.

Voluntary unemployment can be explained by means of Figure 1 . The labor force at a given
moment is L, but the number of people who are looking for an existing one Reallohn (w / p) will
work, is L. The difference between L - L shows the number of voluntary unemployed, that is,
Those who only want to work for a higher Reallohn (w / p). As a result, in the classical
conception, unemployment has the following cause: the stiffness of Reallohn down. Employees
demand higher wages, employers' associations are pushing employers, and consequently the
demand for labor will be reduced. The new analyzes of unemployment show that the

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unemployed want to remain voluntarily without work in order to better examine their
opportunities.

It is also believed that the unemployment

allowance receives voluntary unemployment.

Figure 1

2.2. Keynesian explanation

According to J.M.Keynes, if the state does not implement policies for the support of the national
economy, under-employment of the population is not only possible, but also probable. Keynes
separates from the classical analysis by the following elements: A) the employees no longer
negotiate the salary but the nominal salary. Keynes estimated that a reduction in the nominal
salary led to a reduction in the labor supply. According to Keynes, a reduction of the Reallohn,
as a consequence of the price rise, with the Nominallohn constant, no automatic reduction of the
labor force offer. The employees are opposed to the reduction of the nominal salary, but they do
not accept the lowering of the Reallonhnes. So, the nominals are rigid down, while the reallers
are not. (B) the reallers are not proportional to the nominals, for the level of nominal salary does
not develop propor- tionally with the price level.
(C) the reductions in wages do not encourage enlargement of the labor force, since the nominal
salary is independent of the use of the abolition force. According to Keynes, the employees of
the labor market are to be oppressed, because this can cause the reduction of income. As income
falls, the demand for goods and services decreases. The producers will be less productive, so
many employees will be dismissed.

(D) Keynes introduced the notion of involuntary unemployment. The key to his theory was the
observation that wages do not adjust to market clearance because they are rigid in the short term.
They react only slowly to economic shocks.

Figure 2 shows the situation of involuntary unemployment.

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 Figure 2

Let us assume the following situation: there is a balance on the labor market with a nominal
wage W, a work scope L, and a price level P. The price of the goods drops to the new price P, the
labor demand becomes smaller and the straight line D shifts to the left and becomes D. The
nominee will be rigidly down. The new equilibrium must be at the level of the previous nominal
wage W and the new labor demand D. The volume of work L corresponds to the new
equilibrium. The involuntary unemployment is the result of the difference L - L, since all these
employees will work for the current nominal salary W. If the stiffness were not total, the workers
would accept a certain reduction in wages, and then the labor supply curve O shifts to O. Here a
new equilibrium L takes place, which corresponds to the wage W. The stiffness of pay
emphasizes unemployment for the level L - L. According to the Keynesian theory, the
involuntary unemployment is dependent on the inadequacy of the consumer demand. The cause
of involuntary unemployment is not on the labor market, but on the market of goods and
services, because labor is needed for the production of goods. Long-term involuntary
underemployment means a surplus on the labor market.

2.3. Neoclassical explanation

In neoclassical conception, unemployment results from the growth processes, so this is a natural
phenomenon. There are no voluntary unemployed, because all who want to work can find a job.

According to the neoclassical concept, the current unemployment results from the mobility of the
labor force and the information conditions of the labor market.

The statistics show a diminution in the average period of employment or a widening of the
various periods of unemployment.

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Nowadays the search for a new job is being postponed, because of the high unemployment
allowance, which assures the material existence of the unemployed.

3. Forms of unemployment

In today's society, there are numerous types and forms of unemployment. It depends on the
country and the period. According to the nature of the cause, there are the following types of
unemployment: • Economic unemployment: occurs when the general labor demand is too low. It
appears as a result of reductions in employment that take place during the recession or crisis
period. • Technological unemployment: appears because of the replacement of human labor with
machines. The companies offer fewer jobs, so the unemployed have to be trained again. •
Structural unemployment: a result of the lack of coordination between job offer and labor
demand. This happens when the demand for a kind of work increases, while the demand in
another industry goes back, whereby the supply of work can not adapt quickly enough. •
Seasonal unemployment: is a period of employment fluctuation, In agriculture, construction,
tourism, etc. • Frictional unemployment: The underemployment caused by the fact that job
search is needed for some time is called frictional unemployment. According to the intensity of
unemployment, one differentiates: • Total unemployment: includes the full working hours of an
employee. • Parential unemployment: consists of the short- or long-term reduction of working
hours.
4. The level and dynamics of unemployment

To measure the dimensions of unemployment, some indicators are used. These are:
a) The level indicators can be absolute, i. The number of unemployed persons or relatively
as unemployment rates.
With the help of the unemployment rate one can recognize the employment rate of the labor
force and the state of the national economy.

It is believed that an efective unemployment rate, which is greater than that corresponding to full
employment, shows underemployment.

b) Eg the duration indicators show the duration of unemployment, the time between the
suspension of the employment contract and the new employment.
As a rule, the duration of unemployment is calculated as the average of the number of
unemployed days or months by unemployed.

c) The mobility indicators show how many people are in the search for a job.

d) the structural indicators provide information related to the categories of the unemployed
(how many young people and women are the unemployed).

It is possible that a drop in the employment level can be observed, but the statistically measured
unemployment does not increase or even decrease. Some reasons are:

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• Extension of the training period
• Early retirement
• Migration abroad due to lack of employment in the home country
• Discouraged workers who are not seeking employment because of the poor labor market
situation
• Acceptance of undervalued employment
• short-time working

5. Phillips curve

Phillips was a scientist who made an analysis for Germany, where he used information from the
last 100 years.

The Phillips curve shows the relationship between the development of unemployment and the
rate of increase in wages.
Each point on the graphic representation represents one year and for this the unemployment rate
and inflation rate. The curve matches these points. The smaller the rate of wage increases, the
greater the unemployment rate and vice versa. The greater the rate of wage increases, the lower
the unemployment rate.

Figure 3

6. Measures to combat unemployment

Unemployment, which has crossed the normal boundaries, causes great economic, social, human
and political problems.

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From a macroeconomic perspective, the underemployment of the workforce is a waste of
resources because the production output is below the potential. The economy loses the amount of
goods and services that the unemployed could produce. Moreover, the involuntary
unemployment has particularly serious social effects, both by the reduction of the personal
income of the unemployed, as well as by their mental stress.

The solutions can be implemented through several economic policy measures. These improve the
functioning of the labor market, create new jobs and at the same time mitigate the social effects
of unemployment.
Between these we can include the following measures:
• The creation of new jobs, in the sense of economic growth, can be achieved either by
increasing the demand of the state for an increase in the overall production or by improving the
conditions for more growth in the private sector.
• Improving market transparency: the unemployed are informed about the vacancies offered and
working conditions. This can be realized through employment services and professional advice.
• Promoting the professional mobility of workers: through flexible work programs for the
employees, retraining and training of adults, initial qualification of young people, seasonal and
short-term employment, reduction of working hours.
• Promoting the spatial mobility of workers: possible measures can be the financial incentives,
such as relocation allowances or facilities.
• Reduction of the working age potential: can be achieved by reducing the age limits in the
pension insurance.
• Integration of individual groups of persons: e.g. To promote the recruitment of young graduates
or the unemployed with difficulty.
• Unemployment support: the state offers the unemployment benefit for a certain period, but this
can encourage frictional unemployment. The pressure on recipients of unemployment benefits to
find a new job decreases, and they are inclined to forgo unattractive jobs.

Conclusion

Most people in modern economies are trying to improve their chances on the labor market. The
loss of the job results in the reduction of the standard of living and mental problems.
Unemployment is therefore an important macroeconomic problem and the politicians have the
goal of creating jobs. The economists were concerned with the mechanisms of the labor market
and with unemployment in order to identify the causes of inefficiency and imbalances and to find
better economic measures to combat them. This section deals with the problems of
unemployment, its causes and effects. Firstly, we have explained a pair of theoretical concepts
that serve to better understand the subject.
After explaining the terms: unemployment, the unemployed, I have tried to find the factors that
cause this phenomenon.
With the help of various written sources, I have followed the causes of unemployment in three
directions. The classical, Keynesian and neoclassical conceptions offer different explanations.
The next point in our presentation was the presentation of the types of unemployment.
Furthermore, I have made a research of the level, the dynamics of unemployment and the phillips
curve.
As a conclusion, I tried to find some methods of combating unemployment.

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In my opinion, unemployment affects the countries in different ways. It can have different
causes, it depends on several factors: the degree of development of the countries, their economic
situation and the domestic policy.
Regardless of what unemployment comes from, one has to consider the measures to counteract
this phenomenon. For unemployment means a negative state of the economy of a country.

Bibliography
 Anghelache Constantin – Analiza Macroeconomica, Sinteze si Studii de Caz, Editura
Economica, Bucuresti 2007.
 http://feaa.ucv.ro/AUCSSE/0039v1-018.pdf
 http://www.worldbank.org/en/country/romania/overview

Thank you !