GDP and the derivation of the macro-supply curve. The macro-supply curve of an economy describes the value of the real GDP which is produced at different price levels.
The assumption here is that the level of technological development, the availability and quality of production factors (labour, capital, land (natural resources) and entrepreneural actions) are of decisive importance in the production potential of a country; one can say that this will set a theoretical limit to the size of the GDP at a particular point and will affect the nature of the supply curve.
In the construction of such a macro-supply curve one can measure GDP on the horisontal axis and General price on the vertical axis.
It should now be clear that at a sub-optimum level of GDP there will be certain production factors that will not be fully employed.
But what is meant by "not fully employed?"
If each piece of capital is being worked on by workers that do not sleep - is that "full employment"? Obviously not. There will allways be workers that are not working for myriads of reasons ("being between jobs" for example) and likewise capital that will be idle for as many reasons (waiting time between jobs). This is called "natural unemployment or frictional unemployment" One can also understand seasonal unemployment when work is available to be performed at certain times of the year (eg. fruit picking and crop harvesting).
Cyclical unemployment and Structural unemploment are however of a different nature.
Cyclical unemployment occurs as a result of swings in the business cycle and where prices take time to adjust before redundant capacity is absorbed again.
Structural unemployment that arises from economic growth and technological advances (labour saving devices that put people out of a job) is not of real concern since such unemployment is of a temporary and transitional nature. People that are unemployed will soon find work in expanding areas of the economy. Other production factors will be similarly redeployed.
Some economists refer to structural unemployment where there is an overall inability of the economy to absorb the full potential labour force. This can be seen in developing economies where the population growth outstrips economic growth. In South Africa the unemployment rate is anything between 25 and 50% of the potential workforce (depending on the measure being used). In South Africa this unemployment is mainly caused by restrictive labour laws and minimum wage laws and all the rules and laws that are in place that makes self-employment extremely difficult (as an example more than 80% of the vehicles on the road in Vietnam will be removed from the roads in SA for being unsafe, overloading and for other offences). In SA the poor are furthermore restricted by the many laws designed to protect vested interests as well as the myriads of health, safety and other compliance regulations from starting a micro-enterprise. This type of unemployment can also be referred to as "induced or optional" unemployment and it often affects the youth because salaries and wages cannot drop low enough to make it worthwhile to employ them and then the laws are not flexible enough to be able to reduce the labour force quickly when circumstances call for it. It is referred to as optional because the government can decide to favour existing unionised employees and "protect" them against the unemployed or allow the labour market to employ more people perhaps at a lower average rate per person (such as one finds in countries that are adopting freemarket or non-interventionist economic policies - such as India).
Such optional employment that a society induces on its inhabitants is caused through its political decision making and administrative structures. In certain cases this type of unemployment, as was seen in Egypt and Libya where youth unemployment led to the discontent of the masses, can lead to regime change. Other effects apart from social unrest are:
* Negativity in the society and emigration of skilled people (eg teachers and nurses from Zimbabwe to South Africa, medical doctors, engineers, and computer technicians from South Africa to the UK).
* The economy performing sub-optimally
* General drop in living standards, poverty
* Since economic activity is less than it could so is tax revenue less than it it could be which leads to less services provided to the poor (the Laffer curve argument).
It is in the interest of a country that unemployment levels are contained to reduce the human suffering that results from state control. The answer lies in ensuring a GDP level that is higher than the population growth. In South Africa a GDP of more that 7% is attainable if the laws that inhibit growth is amended.
One example - the laws pertaining to the subdivision of land, land use and sale of land and the bureaucratic red tape involved is a major stumbling bloc in transforming our economy into a high growth economy and putting it onto a winning trajectory. There are many more.
C.M. Heydenrych