THEORY OF EMPLOYMENT 1.Classical Theory / Traditional Free Mar et Its based on wages and employment.

According to this theory wages and employment a re determined by the mar et forcesof demand and supply.The theory states that la bour is demanded so long as marginal product is greater thanwage rate.It also co nsiders that wor ers are ready to wor so long as wage rates are high. Theclassi cal were also of the opinion that wages should be reduced to increaseemployment. LIMITATIONS OF THE THEORY i.The theory assumes that wages are flexible which is not the case wages are onl yflexible when being adjusted upwards but stic y downwards.ii.Many people in dev eloping countries are willing to wor at less than mar et wagerate because of un employment and poverty.iii.The theory recommends a wage cut to cheat employment which does notautomatically lead to increased demand of labour.iv.It assumes tha t a fully employment condition can be attained which is not realistic.v.Its based on competitive mar et situation which is not attainable in the real world.2.Key nesian theory of income and employmentAccording to Keynesian employment is a fun ction of the national income.The higher the national income the higher employmen t and vice versa National income depends on natural resources, quality and effic iency of labour andother factor inputs such as technology and capital.Keynesian also states that effective demand determines the level of employment.Employment is further boosted by savings and investment.21 LIMITATIONS OF KEYNESIAN THEORY i.The theory assumes that firms can respond quic ly and effectively to increased demand by expanding outputs and hence employment.In developing counties the majo r bottlenec to increase output is not insufficientdemand by structural and inst itutional constrains on the supply side e.g. shortage of capital, raw materials and deficiencies in management of human resourcescombined with poorly functionin g and inefficiently organized commodity andlabour mar ets. 21 st September 2011 UNEMPLOYMENT It means that situation when people who are ready and able to wor at the prevai lingwage rate and other terms and conditions of employment are not able to secur e a job.It is a major social economic and political problem for all countries.De veloping countries experience it more than the developed. TYPES OF UNEMPLOYMENT 1. Frictional Unemployment - This is caused by labour turnover 2. Structural Unemployment - This is caused by structural changes in the economy3. Seasonal Unemployment - This usually happens in the agricultural and tourism sector which are affected by the weather and season.4. Cyclical / Demand deficient / Keynesian Unemployment This occurs when there isno demand for goods and services leading to closure of

factories.5. Disguised / Hidden Unemployment This occurs when there is no sufficient wor toeffectively occupy a given number of wor ers.In this case even if some wor ers are withdrawn wor will not be aff ected. CAUSES OF UNEMPLOYMENT 1. Shortage of corporate factors of production land and capital2. Use of inappropriate technology there are two methods of production.(Labour intensive/ capital intensive)22

3. Distortion of factor of production prices (rewards) when the rewards are fixed theminimum prices4. Rapid population growth / High population it should grow as the same as jobcreation. 5.Nature of education system.6.Seasonality in production structure. 7. Limited product mar et the products have no mar et, there is no demand for Kenyan mar et 8.Casualisation of employment 9.Presence of expatriates 10. Mobility of labour li e the rural urban migration also nown as urbanunemployment. MEASURES TO CONTROL UNEMPLOYMENT 1.The government can avail loans2.Labour intensive the government can use machin e3.Fixing of the wages all the three parties can be involved4.Should have educat ion that is appropriate to your country.5.Can go to manufacture instead of relyi ng on agriculture6.Deny wor permits or close boarders7.Decentralization8.Misman agement of resources HUMAN CAPITAL 23 of 23 Leave a Comment You must be logged in to leave a comment. Submit Characters: 400 Labour Economics Notes HRM 201 Download or Print 247 Reads Info and Rating Uploaded by Lorna Atieno O atch Follow Download Search TIP Press Ctrl-F to quic ly search anywhere in the document. More from This User Related Documents 24 p. lorna ass. 23 p. Labour Economics Notes HRM 201 24 p.

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