For full employment to be attained there must be some level of inflation in a country. Inflation and unemployment have a negative relationship. Keynesian economists also supported this argument that in order to achieve full employment some level of inflation is unavoidable. This is not the case in most developing countries because there is normally high unemployment and high inflation rates at the same time. This may be due to the following reasons;
- In most less developed countries it is common to find cases of stagflation
- In most cases employers and wage earners base their decisions on inflation adjusted purchasing power and in this case wages rise or fall in reaction to demand for labour. This means that wages can rise in tandem with inflation without necessarily causing unemployment.
Inflation on the other hand is the general increase in the price level. Inflation in most developing countries is caused by increase in aggregate demand and an increase in the cost of production. It is argued that if a government wants to reduce unemployment it must content with higher levels of inflation as a tradeoff.
Although many individuals have various qualifications in various fields and are able and willing to work at existing wage rates they fail to get jobs. Reasons such as poor education systems, Governmental corruption, Business cycles, Lack of property rights among others give a valid explanation to the existence of unemployment in less developed countries.
Poor education systems do not equip the learners with the right information regarding self employment as an alternative in the cases where they are not employed in firms. Most people in developing countries have the notion of having white collar jobs. They are encouraged to work very hard in school, get good grades and be employed with high paying firms. However this never occurs because there are very few firms which may fail to employ all the human resource that is available. The skills that are provided in class are normally not practical in the day to day life thus an individual cannot use the skills acquired to be self employed thus leading high unemployment rates in less developed countries.
The varying business cycles/swings in the economy such as the boom, recession, recovery and depression are also a source of unemployment in less developed countries also cause unemployment. Most developing economies experience depressions in many cases thus realizing high cases of unemployment occasioned by insuffient demand and low levels of investment. This generally results to a lower level of employment hence the cyclical unemployment.
Due to lack of property rights, many individuals lack the incentive to invest in various development projects for the fear of losing their property in one way or another. Investors therefore prefer not to invest in less developed countries.
Other reasons that may cause unemployment are the seasonal nature of the employment and the structural changes in the employment sector. The seasonal nature of some productive activities e.g. agriculture and tourism sectors .When the seasons are low, then unemployment is likely to occur and vice versa.
Structural unemployment may also result from changes in consumer tastes and preferences or from technological changes that may lead to closure of some industries. Structural unemployment may also result from inability of former employees to move into new jobs being created in new industries. Unemployment may also result from ignorance, poor currency, and closure of industries among others.
Are there solutions for unemployment and inflation in less developed countries?
There are various suggested solutions on unemployment such as supporting the youth enterprises, creation of a 24 hour economy, Labour laws enforcement and Restructuring the Education System.
Supporting the youth enterprises is a very crucial role in the economy sincce the youth are the most affected group in the employment sector. Most youths have good ideas that can be developed to be productive in the economy. This will help in creation of employment opportunities among the youth.
Establishing the youth fund with the sole purpose of reducing unemployment among the youth. The target group should be of individuals within the age bracket of 18-35.The functions of the fund will be
- Providing funding and business development services to the youth owned enterprises or youth focused enterprises
- Providing incentives to commercial banks which will lend to the youths in society.
- Facilitate employment of youth in the international labour markets.
- Attracting investment in micro enterprises oriented commercial infrastructure such as business or industrial parks that will benefit the youth enterprises.
Creation of a 24 hour economy will facilitate availability of employment opportunities thus reduce cases of unemployment since people will be working in different shifts. More productivity in industries thus large scale productivity.
The labour laws enforced should ensure that employees are not overworked and underpaid. Labour laws will ensure that issues brought about by overworking employees and this will encourage employment creation and will enhance careers.
Restructuring the Education System will encourage relevance of education in the employment environment. Ensuring that syllabus used will promote self-employment and reduce over reliance on white collar jobs. Technical subjects should be well taught as well as encouraging co-curriculum activities which develop an individual’s talent in the various areas.
In periods of high inflation, consumers will tend to buy goods of low quality due to high price level. From the social view price increases make people uncomfortable this is because the cost of living has increased. High cost of living causes social and political unrest.