ECO 211 (MACROECONOMICS) TOPIC : STRUCTURAL UNEMPLOYMENT GROUP : J4BA1173G PREPARED BY : NAME AMIRAH HIDAYAH BT MOHD RIZUAN SITI NUR BALQIS BT ZAINURIN NURRUL AISYAH BT MOHD HAIRUN ISHAM NUR ARIFFAH BINTI MAHABU FATIN BINTI MOHD HADZUAN MATRIX NO. 2019201478 2019411504 2019261954 2019292376 2019415042 PREPARED FOR : MISS SITI MAHIRAH BINTI MOHAMED TABLE OF CONTENTS CONTENTS 1.0 ACKNOWLEDGEMENT ................................................................................................... 1 2.0 EXECUTIVE SUMMARY ................................................................................................. 2 3.0 INTRODUCTION ............................................................................................................... 3 4.0 ANALYZING CURRENT MACROECONOMICS PROBLEMS ..................................... 4 5.0 DISCUSSION ON THE MEASURES TO OVERCOME THE PROBLEMS ................... 8 6.0 CONCLUSION .................................................................................................................. 10 7.0 REFERENCES .................................................................................................................. 11 1.0 ACKNOWLEDGEMENT Assalamualaikum, Bismillahirrahmanirrahim. First of all, we would like to express our gratitude to Allah S.W.T for enabling us in finishing this assignment for ECO 211 subject within the given time. Also, special thanks to our lecturer Miss Siti Mahirah binti Mohamed for guiding us in every aspect in this assignment such as the ideas, knowledge and advices on how to finish this assignment. Not to forget, our parents and friends for supporting us throughout the process of perfecting this assignment because without their support, we were not be able to complete this task. There are a lot of complications and challenges were faced during these processes but we managed to handle the hardships and learn through every mistake that were made. Through these problems, we learned how to become more professionalized in managing problems and how to work in a team. Lastly, thanks to all the members that got involved in helping to complete this assignment successfully. This assignment could not be completed without the effort and cooperation of our group members. 1 2.0 EXECUTIVE SUMMARY Structural unemployment is being addressed in this study and how structural unemployment can affect the economy, especially in Malaysia. Structural unemployment is the result of a structural downturn in manufacturing, unable to compete or adjust to changing demands and new products and to change production methods. This research is an extensive study of Malaysian structural unemployment. This study discusses the main problems divided into five, namely fundamental changes in the economy, trade agreements such as the North American Free Trade Agreement, employment immobility and globalization and free trade. Each issue has an effect of its own. The effects of structural unemployment on the economy include reducing national production, reducing national wages, rising the rate of poverty and unstable economy. To resolve these problems, there are strategies that can be put forward. Among them, by using a policy of direct control. All direct measures other than monetary and fiscal policies taken by the government are referred to by direct control policy. The establishment of training centers to train workers in new skills designed to improve work mobility is one of the direct measures of direct control. Next, another approach to the company's economic dilemma is to move to places where the unemployment rate is high by offering tax incentives. The labor market should, in addition, be more competitive than ever before. Next, economic diversity in many fields and unification. Last but not least, the government should also provide the unemployed with better work details to make them more active. 2 3.0 INTRODUCTION Unemployment is actually a term referring to the individuals who are employable and seeking for job but are unable to find a job. It is usually measured by unemployment rate, which is dividing the number of unemployed people by the total number of people in the workforce. Unemployment is often used as the measure of the health of the economy. Besides, it also serves as one of the indicators of an economy’s status. (Westfall, 2020). Unemployment also a key economic indicator because it shows the ability and also inability of workers to readily obtain profitable work to contribute to the productive output to the economy. More unemployed workers mean less total economic production will occur than it might have. Unlike inactive capital, unemployed workers still need to maintain their subsistence consumption during their moment of unemployment. This gives the meaning that an economy with high unemployment has lower output without corresponding decline in the need for basic consumption. Unemployment may be ‘voluntary’ and ‘involuntary’. ‘Voluntary’ unemployment happens when there is a job available, but the unemployed person does not want to accept it at the going wage rate. Besides, there is also ‘involuntary unemployment’. It occurs when a person is willing to accept the job at the going wage rate, but cannot find any. Involuntary unemployment includes workers fired due to any economic crisis, industrial decline, company bankruptcy or an organizational restructuring. Next, underemployment refers to the people who have a job that is temporary, or part-time. They would to work as a full-time worker but only have part-time job. Later, there is also economically inactive population, they are the people who outside the labour force, in those institution such as hostels, hospitals, prisons, boarding houses and military barracks. Also included housewives, students, patients, and prisoners. There are so many types of unemployment and structural unemployment is one of it. Structural unemployment resulting the structural decline of industries, unable to compete or adapt to changing demands and new products, or changing methods of production. An alteration in the pattern of demand results when tastes change, demographic profile change or introduction of new products or technology may have made the old product and the skills of workers are no longer needed. Growth of international competition getting the workers being laid off and the workers will find difficulties in getting job as their job skills may no longer match the requirements of the new jobs offers. 3 4.0 ANALYZING CURRENT MACROECONOMICS PROBLEMS Structural unemployment is due to fundamental changes in the economy and is exacerbated by external factors such as technological advances, government policies and the lack of necessary employee skills. Among the causes of structural unemployment is technological changes. Technological changes can significantly affect the economy. The introduction of new technologies can cause some existing jobs to become obsolete causing many people to be unemployed. Also, new technologies will greatly improve productivity, allowing firms to reduce their workers without damaging their overall output. In such a scenario, many employees risk the loss of their jobs and structural unemployment will arise. Another reason is trade agreements such as the North American Free Trade Agreement. When NAFTA lifted trade restrictions for the first time, many factories moved to Mexico. They leave their workers without a place to work. The agreement proved to be one of the leading causes of unemployment in the United States. Geographical immobility is also one of the causes. Even though the geographical imbalance of the population is not a direct cause of structural unemployment, this can exacerbate its effects. This occurs when workers are unable to move from high unemployment areas to low labor areas. This may be due to the difficulty of buying or renting a house. Workers are too far from the area where jobs are available. This may also be due to family ties with their current area. If the population in the high unemployment region is not willing to move to other parts of the country with better working conditions, unemployment will last longer. Next, job immobility. This happened after a change in the economy that led to a change in demand for skilled labor. For example, if there is a closure of a manufacturing company, employees with skills for this type of job may have difficulty moving to a new industry where very different skills are required. For example, IT skills, teaching, accounting. It takes time to train older people and employees may find it too difficult. In addition, globalization and free trade can lead to changes in labor patterns and labor demand. In recent decades, many firms have shifted clothing manufacturing from highwage, European economies to Asian economies such as China, India and Bangladesh. This has led to a high level of structural unemployment for those who lost their jobs in European industry. Globalization and free trade do create new opportunities. For example, as the old industry declined, new industries emerged such as high-tech manufacturing, IT, computing, 4 insurance and internet-based companies. However, these new industries may require different skills than previous manufacturing jobs and this is what can lead to structural unemployment. Unemployment that occurs in a country will affect the economy. The effect of unemployment on the economy is reduce national production. When there are many unemployed workers then production from some sectors of the economy will decrease and as a result national production for the country will decrease. Unemployment does not drive economic growth. High unemployment will affect the performance of economic growth. Waste of production resources results in lower production output than performance output. Second, lowering the standard of living. The living standards of the population in a country are measured using per capita income. When there are many unemployed workers then gross national product will be reduced and in turn will reduce per capita income. When the per capita income is low then the living standards of the population will also be low. Next, reduce national income. If the unemployment rate is high, the entrepreneur's income or profit will decline. This would decrease the amount of income tax and corporate benefit tax that the government will raise and in turn decrease the national income. Unemployment causes people to leave their positions and causes income tax collection to decline indirectly.In addition, it slows down the process of national development. When the country's income decreases, then the government is unable to provide the various infrastructure facilities needed to generate economic growth. Such expenditure should be reduced and will slow down the country's development process. High unemployment makes it unable for the economy to work at the maximum level. Lastly, increasing the poverty rate. High unemployment will increase the poverty rate in the country. The government should plan several programs to address the problem of poverty. This will impact the efforts of the government to develop the country. Structural unemployment usually occurs due to technological changes. When new technologies are adopted, some occupations and skills may be replaced by machines, a process known as automation. At train stations, ticket machines reduce the needs of ticket officers, the Internet decreases the needs of travel agents, and online shopping reduces the needs of store workers. People can also become structurally unemployed when new technology kills the demand for old technology. For example, people who make and sell typewriters do not lose their jobs automatically, they lose their jobs to people who make and sell more efficient forms of typewriters such as computers. 5 Structural unemployment can be a major problem for economic stability. Moving employees from old jobs to new jobs is often a messy, long and expensive business, both economically and socially. The vast majority of the population may need to be fully trained and retrained to adapt to new technologies and even with training programs, some people are usually unemployed for long periods of time. Some economists even argue that structural unemployment can make the economy stronger in the long run. If new technology causes unemployment, then the new jobs produced by that technology should be more efficient and productive than the old ones. But here there is still room for debate: more efficiency means we can produce more goods, and not everyone agrees that that is what we should do as a society. An example is the recession in 2008 - 2009. While the global recession of 2008 2009 resulted in cyclical unemployment, structural unemployment in the United States also increased. When the unemployment rate reaches more than 10%, the average unemployment period for millions of workers increases significantly. The skills of these workers decreased over a long period of unemployment, resulting in structural unemployment. The depressed housing market is also affecting the job prospects of the unemployed and therefore increasing the unemployment rate. Moving to a new job in another city means selling a home at a huge loss, something that not many are willing to do, creating a mismatch of skills and job availability. Next, France. France has been heavily influenced by structural unemployment. The country is facing a recession due to natural disasters and a strike that halted the economic recovery. Structural unemployment arises from the fact that most of the French workforce participates in temporary second-level employment, with little opportunity to be promoted to long-term contracts, which forces a strike. This resulted in a small lack of flexibility and labor mobility, leaving many French workers unfamiliar with new tasks and skills. French trade unions and governments are negotiating to help curb structural unemployment. Other than that, the journalism industry. Technological advances have created structural attacks in the press industry. Advertisers have moved from newspaper ads to webbased advertising. Online news media available on the Internet has made customers far from newspapers. Different newspaper workers had to be fired such as printers, journalists and delivery route workers. Their skills are based on different methods of distributing newspaper 6 news. Therefore, they had to receive new training before qualifying for a job in the same field. Lastly, farmers. Another example of structural unemployment is farmers in emerging market economies. Free trade allowed global food companies to access their markets. This leaves small farmers out of business. They cannot compete with lower global company prices. As a result, they go to cities looking for jobs. Unemployment of these structures exists until they are retrained, possibly in factory work. There is an article from Malaysia Kini stating that dealing with structural unemployment holistically. Therefore, structural unemployment needs to be seen and holistically approached as an interconnected whole. There was a conclusion that due to a mismatch between the skills needed in this new industrial revolution and the current skills acquired by Malaysians through learning institutions, structural unemployment would result. Structural unemployment should be treated in a systemic way and not strictly answered with slogans such as "Industry 4" or as an artificial intelligence exaggeration. In this context, it is crucial that the Ministry of Human Resources, in partnership with the Ministries of Trade and Industry and Agriculture, draw up a blueprint on how chronic unemployment can be handled. In order to address the challenges of structural unemployment, the connection between trade policy and the production of human resources would require a systematic and organised approach by key ministries. When there are trade agreements that benefit large companies, structural unemployment is often generated. Is the emergence of artificial intelligence the only explanation why jobs can be transformed and structural unemployment is possible? This is to reduce migration to clustered cities that would generate structural unemployment because the skills needed by the Industry 4 revolution could be lacking for rural workers. 7 5.0 DISCUSSION ON THE MEASURES TO OVERCOME THE PROBLEMS Measures to control structural unemployment is by using direct controls policies. Direct control policies refer to all direct measures other than monetary and fiscal policy taken by the government. Generally, direct control policies are imposed by government which is directly prohibit or restricts certain kinds of investment or economic activity. Occasionally, the government direct control over prices and wages is a measure to control structural unemployment that has been supported and implemented. These can be introduced or changed quickly and easily, hence the effects of these can be rapid. Direct controls can be more discriminatory than monetary and fiscal policies. One of the measures of direct control policy is by setting up training centers to retrain workers in new skills which is to improve occupational mobility. These training measure will focus on skills and qualifications which will allow the unemployed to find work in new industries. This could include the government paying the firm for the training schemes in skills which are short in supply. As for example, vocational training such as bricklaying, plumber, electrician or nursing. Firms may be reluctant to provide adequate training because of ‘free-rider problem’. If the employees benefit from the training schemes, they can go and work for another firms. If the government pays in full or subsidizes the firms, it will help to overcome the structural unemployment. However, there may be a disadvantage of government failure. For example, a government department may be slow to respond to changes in market preferences and may be subsidize the wrong kind of training schemes which is unnecessary to the employers. Offering training schemes does not necessarily have a high intake rate. The unemployed may not have the confidence or willingness to take new training schemes because they are unsure of its benefits. Next, the other solution to the economics problems encouraged by firms to move into areas where there are high levels of unemployment by giving tax incentives. The government should create many application jobs in many various sectors to reducing unemployment problems that have been found. Most of the time, rural areas should be taken note by the government. There are many types of industry that can be done in the area. Because of this situation, the unemployed do not have the other options because of some factors for choosing personal own jobs. Other than that, the tax incentives should be included to the employee's because there are arguments of the main factors for their own source of income. 8 Furthermore, labour market should be more flexibility than before. Labour market flexibility can be defined as how quickly a firm responds to changing conditions in the market by making modifications to its workforce. A flexible labour market allows employers to make changes because of the economic cycle, supply and demand issues and other market conditions. For an example, an employer that has high flexibility can cut wages and increase the number of work hours that employees are expected to work to boost productivity. However, when the economy is strong, the same employer may decide to give employees a slight raise and cut back on their hours. Next, diversification and integration of economy in many sectors. This can be in agricultural, manufacturing, construction, transportation, finance, insurance and services sectors. A lack of economic diversification is often associated with increased the risk to external shocks that can undermine anticipation for long-term economic growth. Trade expansion is essential to create new jobs and higher in productivity that will facilitate growth through structural transformation. The integration into the global economic growth lies behind the success of many countries in expanding their economies, encourage poverty reduction in the process. Export diversification should be seen as a goal to reduce the risk of trade shocks and stabilize the export earnings. The nature and structure protection in overseas markets shape the opportunities for the diversity of exports in developing countries. The world’s poorest countries, many of them ate often small or geographically isolated, landlocked or highly dependent on primary or mineral agriculture. It tend to have the most concentrated economic structure. Besides that, the government should also provide a better job information to unemployment to make they more interested. Nowadays, many facilities technology have been introduced for people whose looking for a job. For example, with internet the employee can explore the websites without going outside like the old days. Moreover, other alternative is by advertisement, message, newspaper, television and many more. Many types of platforms that we can reach easily if the government give a better flow of job information. In conclusion, there are solutions to overcome the structural unemployment that had happen and all parties should work together to solve or reduce unemployment rate. 9 6.0 CONCLUSION In conclusion, unemployment happens because of changes in a country's economic system. In fact, unemployment can occur as a result of the imbalance between people looking for work and the employment opportunities available. Structural unemployment needs to be addressed as soon as possible. This is because of this unemployment, a significant reduction in the productivity and income of the community can cause other socio-economic problems and can lead to long-term poverty. Reducing national production is among the consequences of unemployment. If there are many unemployed workers, the production of certain sectors of the economy will decrease and as a result the output of the country will decrease. Moreover, it slows down the national growth process. When the income of the nation decreases, so the government can not provide the different infrastructure facilities needed to generate growth in economic terms. That spending had to be decreased and would slow down the development process of the country. High unemployment makes it unable for the economy to work at the highest level. Thus, the government must be alert to unemployment in Malaysia for the sake of progress in the country. 10 7.0 REFERENCES 1. Chand, S. (2014, February 18). Economic stabilization :Monetary Policy, Fiscal Policy and Direct Controls. Your Article Library. https://www.yourarticlelibrary.com/economics/economic-stabilization-monetarypolicy-fiscal-policy-and-direct-controls/25997 2. Bivens, J. (2018, March 27). Recommendations for creating jobs and economic security in the U.S.: Making sense of debates about full employment, public investment, and public job creation. Economic Policy Institute. https://www.epi.org/publication/creating-jobs-and-economic-security/ 3. Brenton, P., Gillson, I., & Sauvé, P. (2019, August 23). Economic diversification: Why trade matters. Trade 4 Dev News. https://trade4devnews.enhancedif.org/en/news/economic-diversification-why-tradematters#:%7E:text=Integration%20into%20the%20global%20economy,shocks%20an d%20stabilise%20export%20revenues 4. Amadeo, K. (2020, August 30). Why It’s Harder to Find A Job Now in Some Industries. 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Malaysia Kini. https://www.malaysiakini.com/letters/434447 11
