- It is an act of giving jobs to people by an institution (company) in return for wages.
- Employment of labour occurs when jobs are given to applicants or people seeking jobs by an institution on agreed wage rates.
It is said to exist if the number of people who are willing to work and seeking jobs is less than or equal to the number of announced vacancies. That is, full employment is assumed to occur if all members of the labour force – those who are willing (eligible) to work and seeking for job are gainfully employed: supply of labour equals demand for labour.
“It is a situation in which all people who are legally qualified, willing to work and seeking job (or all members of the labour force) are gainfully employed”.
In reality it may not be possible for everybody in a society to be gainfully employed at all times. Thus full employment is said to exist if almost all members of the labour force are gainfully employed. This is due to economic friction – labour turnover (for frictional unemployment). It is, therefore, assumed that full employment occurs if about 95% – 98% of the labour force is gainfully employed.
Factors influencing level of employment
1)Level of investment: A high level of investment raises level of economic activities. This creates many job opportunities, and many people will be employed, and vice versa.
2)Government policy: A high minimum wage rate causes retrenchment of workers; it also reduces the rate of employing new workers. This lowers the level of employment, and vice versa.
3) Political stability/low rate of crime: Absence of a severe political instability, e.g. civil war as well as complete absence of high wave of crime, like kidnapping, armed robber, etc encourage both local and foreign entrepreneurs to set up firms. This raises level of employment, and vice versa.
4)Pricing policy of government: A high level of minimum price control raises income of farmers. This reduces unemployment in agricultural sector. While extremely low maximum price control reduces demand for labour in industries producing the affected goods and services.
5) Prevailing climate (weather): A poor (bad) climatic conditions, like prolonged heavy rainfall, severe drought, etc, causes seasonal unemployment. They lower level of employment.While favourable weather raises it.
6) Prevailing economic conditions: Favourable economic conditions, like economic boom and period of inflation, raise level of employment. While a period of slump (deflation low level of economic activities) makes the level of employment to fall.
7) Prevailing system of production:
- Labour-intensive industry: the adoption of labour intensive form of production (labour is more than machines) causes a rise in the level of employment.
- Capital-intensive industry: the use of many machines in factories rather than labour (people) causes a fall in the level of employment.
8) Lending policy
The leading policies of both government and financial institutions affect level of employment. A rise in the level of lending raises economic activities; and this raises level of employment, and vice versa.
9) Availability of entrepreneurs: A country with a large number of people (entrepreneurs) who can easily raise large capital (especially through sales of shares and stocks) for setting up both medium and large firms has a high level of employment, and vice versa.
10) Trade Union influence: A strong trade union bargain for and succeed in fixing high wage rate. This may reduce level of employment if many employers can’t pay it.
11) Level of export and import: A great rise in a volume of export, e.g. a rise in export of minerals like petroleum products leads to a rise in level of employment. While a great rise in volume of import may reduce demand for locally made goods. This causes retrenchment and a fall in the level of employment.
12) A rise in aggregate expenditure: A rise in total expenditure in an economy creates demand for goods and services. This leads to a rise in the level of employment, and vice versa.
13) Enabling environment – more social amenities: Creation of enabling environment in terms of social infrastructural facilities, e.g. constant supply of electricity and pipe-borne water, industrial estates, network of good roads, well equipped hospitals, railway, air- and sea-ports, reliable transport and communication system, etc, magnet (attract) both indigenous and foreign investors. And this leads to a rise in level of investment and employment.
14) Official School Leaving Age – Age of Entry; If the official school leaving age or age of entry into the labour is lower, the level of employment will be high and vice versa.
15) Prevailing economic conditions: Favourable economic conditions, like economic boom, raise level of employment. While a period of slump (low level of economic activities) makes the level of employment to fall.
- It is a situation in which workers (people who are employed) are not fully utilized (not properly engaged).
- It occurs when workers don’t have sufficient work to do; thus they remain idle in some hours like 4 hours of the working period of 8-9 hours.
Under-employment of labour occurs if labour or a worker works below full capacity. He is under-utilized; he does not have sufficient work to occupy him throughout the day. Therefore, he cannot produce maximum (greatest) output. It also affects those who are self employed, e.g. carpenters, tailors, repairers, etc.
It may be caused by the following factors:-
- Lack of capital or little or non working capital.
- Inadequate resources.
- Lack of raw materials and/or petroleum products,
- Low level of demand for the available finished goods.
- Inadequate articles of trade or absence of customers.
- Break-down of major machines used in manufacturing goods and/or rendering of service.
- Irregular supply of electricity coupled with faulty generator, etc.
The following are its major effects:-
- A fall in a firm’s output and gross domestic product.
- A fall in individual income and national income.
- A fall in standard of living.
- An increase in debt.
- An under-utilization of other natural resources.
- A decrease in export.
- An increase in import, and a fall in amount of foreign exchange earning.