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DD202B Economics And Economic Change

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  • Course Code: DD202B
  • University: Arab Open University
  • Country: Egypt

Question:

This TMA is an essay based on , Economics and Economic Change .This TMA requires you to examine the unemployment policy, assess its cost, and discuss the economic implications of such policies.

Please read first the following article:

Gulf Arab states may see unemployment rise,

labour reforms needed –IMF

By Martin Dokoupil

DUBAI, Nov 20 (Reuters) - Gulf Arab oil exporters may see unemployment among their citizens rise in coming years unless they change a decades-old habit of relying on cheap foreign labour, the International Monetary Fund said on Wednesday.

Since the 1970s, millions of mainly low-skilled workers from south and southeast Asia have supported rapid economic growth in the Gulf states, whose citizens tend to favour cushy, high-paid public sector jobs.

But this model is unlikely to be sustainable in the six Gulf Cooperation Council states - Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain - because of young, growing populations and high public wage bills, the IMF warned.

"With a rapidly rising youth population...private-sector job creation for GCC nationals has become a challenge and unemployment could rise in the coming years unless more nationals find jobs in the private sector," the IMF said.

The GCC labour force could grow 3-4 percent each year, so an additional 1.2-1.6 million GCC citizens could enter the labour market by 2018, it estimated. If the current share of nationals in the private sector is merely to stay flat, about 600,000 private-sector jobs must be generated for nationals by 2018.

However, this would only absorb about one-half to one-third of expected labour market entrants, the IMF warned in a paper, adding: "Even if public-sector hiring continues at its recent pace, unemployment could rise."

Source: http://www.reuters.com/article/2013/11/20/imf-gulf-jobs-idUSL5N0J51IQ20131120 [Accessed: 15.9.2015]

The TMA

This TMA requires you to write a structured essay , in which you attempt to answer the following questions:

  1. Discuss and analyze the type and the cost of unemployment in the country you are living in. What are the main factors affecting the unemployment rate?
  1. What do you propose to minimize the unemployment rate?
 

Answer:

Introduction

Unemployment, its Costs and Types

Unemployment is a situation where an individual who is actively looking for work, is unable to find one. It could be because of the rate of growth of economy. If the economy has high level of unemployment, the economic condition of the country is not good. Its potential lies untapped and the resources are not allocated efficiently. There are various types of unemployment including structural, cyclical and frictional. The given paper analyses the issues influencing the current unemployment scenario and the cost associated with it in Kuwait.

Current Scenario of Unemployment in Kuwait

Kuwait is a small economy where petroleum and oil propel the economy. With the discovery in 1934, the economy transformed and it occupies 9% of the world oil reserves (Ertl, 2014). It has the highest unit valued currency around the globe. The major employment occurs in the petroleum industry. The economy faces a problem of unemployment because of many factors. Unemployment in the males fell from 1.2% (2015-16) to 0.9% (2016-17) while it roe in females from 4.4% (2015-16) to 5.8% (2016-17) (Saleh, 2018).

The unemployment in Kuwait touched 4.7% in the year 2015 while the total unemployment rate fell from 2.5% to 2.2%. Meanwhile, 1.8% of non-Kuwaitis are yet to be employed (Jabr, 2016). People are disinclined towards working in sectors other than the public and wait for the opportunities to show up.

 

(Statista, 2017)

Female unemployment in Kuwait even though declining, is very high in magnitude. The labour force participation of females is 54% while that of males is 85% (Kuwait Times, 2015). Females are reluctant to join the labour force.

 

 (Kuwait Times, 2015)

Plausible Reasons for the Unemployment

Dependence on the Resources

Kuwait has been endowed with and largely dependent on the hydrocarbon resources for the development of its economy. This magnitude has been high even in respect to other GCC states. 50% of its GDP is dependent on the export of petroleum and oil. This is around 86% of Kuwait’s exports and 85% of the revenues of the government. This makes the economy highly volatile to the changes in the international markets (Ertl, 2014). For the sake of sustainable development and stable employment generation, the country needs to diversify its economic activities.

 

Demographic Structure

The demographic structure of the Kuwaitis for the year 2017 is given below. It does not include the data for non-Kuwaitis. It shows that the major population is below the age of working age. There is an unbalanced structure contributing to the high rate of immigration and heavy reliance on the imported labor (World Population Review, 2018).

 

(The Public Authority for Civil Informaion, 2018)

Public Sector Inclination

The increase in the labor force is not accommodated by the job creation in the public sector. This puts a burden on the government to create job as the people are interested to work in the public sector and not the private sector. This eventually increases the government expenditure in terms of high wages and social benefits given to the inefficient and over-staffed public sector units.

Labor Force Participation

The labor force participation in 2017 was 69% in comparison to 69.6% in 2016 (CEIC, 2017). The national estimate for female participation in the labor force (15-24 years of age) was 14.50% in 2016 while the modeled ILO estimate was 25.05% and 25.29% in the year 2016 and 2017 respectively. The national estimate for male participation in the labor force (15-24 years of age was 44.20% in comparison to the modeled ILO estimate 42.43% and 43.56% in the year 2016 and 2017 respectively (Index Mundi, 2018).

 

 (World Bank, 2018)

Beliefs of the People

The unemployment rate in Kuwait can be attributed to the lower female participation. This could be because of the beliefs, ethics, moral values and traditions that the people follow. Many countries do not favor the working of females. There are conservative laws prohibiting the female participation (M et al., 2014). Some countries bar their education as well. The labor force is not only unskilled and uneducated but also unemployed. Many of them are not even a part of the labor force. This reduces the potential of the country and the output, efficiency and employment realized are low. There is a huge potential lying untapped because of conservative mindset of the people.

Others

There is voluntary unemployment where people are not willing to work at the prevailing wages in the market. They value leisure over work. They look for the unemployment modes and compensations provided by the government and hesitate to work. They weigh the opportunity cost associated with being unemployed to that of being employed. The people in Kuwait are very rich and own petroleum and oil reserves. Thus, some of them are reluctant to work. Frictional unemployment is also prevalent in the economy. The job search process and the rigidity of wages are the factors responsible for the non-immediate nature of employment. This form of unemployment is generally short-term. The long-term unemployment can be attributed to structural changes and issues in the economy.

Suggestions and Conclusion

Unemployment in Kuwait and other nations in the GCC region hamper their growth and development. Human resource is the most important asset of a nation. The heavy dependence on exports of hydrocarbons as well as the public sector leads to unstable and non-sustainable growth in the country. The hydrocarbon sector despite the scale does not create large number of jobs (Al-Habees & Rumman, 2012). There is a need to shift towards more reliant and long-term sustainable growth which will improve the conditions of the society as well as the government. Unemployment not only adds to the burden of the public sector also contributes to the low economic growth. The lifestyle of the people and the society can be improved with the help of proper education and employment.

The unsecure private sector is one of the main reasons for the prevailing unemployment in the GCC region. The issue can be solved by building the trust in the masses towards the private sector. The firms should attract the labor force by providing high wages and job security. This will help to remove the burden from the government expenditure. Also, the government should formulate polices in favor of private sector which will boost the opportunities and the attract people towards the same. Labor security and insurance must be made necessary for the firms.

On the other hand, the governments in the GCC region should encourage entrepreneurship by providing benefits. This will provide people an incentive to shift from public sector to entrepreneurship. This could be done by lowering down the interest rates which will boost the loans for business setups. The other steps could be tax exemption and lessen the burden of paper work and legal requirements in most of the industries.

The government should increase the investment in the public sector to incorporate the growing labor size (Nagel, 2015). It can also encourage the foreign direct investment (FDI) and reduce the trade barriers. FDI will increase employment in the nation.

Also, the government should encourage the education and skill development in the nation. This increases the labor productivity and efficiency. The people will be more willing to work when provided the higher wage due to increased knowledge and skill. The opportunity cost of not working will increase in this case and people will move towards private sector for higher wages. There will be sustainable growth and the employability of the people will increase. Education will also improve the conservative thinking of the people and female participation in the labor force will increase.

Thus, unemployment can be reduced by increasing the investment, the level of education, promoting private sector and increasing the female labor force participation.

 

References

Al-Habees, M.A. & Rumman, M.A., 2012. The Relationship Between Unemployment and Economic Growth in Jordan and Some Arab Countries. World Applied Sciences Journal, 18(05), pp.673-80. Available at: https://pdfs.semanticscholar.org/95c3/7e58c6b350dd0eb30e7bfdeb53d6c524564a.pdf [Accessed 13 April 2018].

CEIC, 2017. Kuwait Labour Force Participation Rate. [Online] Available at: https://www.ceicdata.com/en/indicator/kuwait/labour-force-participation-rate [Accessed 13 April 2018].

Ertl, V., 2014. The Path to Economic Growth in Kuwait. [Online] Available at: https://www.sciencespo.fr/psia/sites/sciencespo.fr.psia/files/ERTL_Veronika_KSP_Paper_Award.pdf [Accessed 13 April 2018].

Index Mundi, 2018. Kuwait - Labor force participation rate. [Online] Available at: https://www.indexmundi.com/facts/kuwait/labor-force-participation-rate [Accessed 13 April 2018].

Jabr, A., 2016. 58 percent unemployed Kuwaitis unwilling to work in private sector – Efforts to Kuwaitize private sector largely failed. [Online] Available at: https://news.kuwaittimes.net/website/58-percent-unemployed-kuwaitis-unwilling-work-private-sector/ [Accessed 12 April 2018].

Kuwait Times, 2015. Labor force participation rate in Kuwait reached 72 percent – Labor Force Survey 2014: Main Findings – Part I. [Online] Available at: https://news.kuwaittimes.net/labor-force-participation-rate-in-kuwait-reached-72-percent-labor-force-survey-2014-main-findings-part-i/ [Accessed 12 April 2018].

Kuwait Times, 2015. Labor force participation rate in Kuwait reached 72 percent – Labor Force Survey 2014: Main Findings – Part I. [Online] Available at: https://news.kuwaittimes.net/labor-force-participation-rate-in-kuwait-reached-72-percent-labor-force-survey-2014-main-findings-part-i/ [Accessed 13 April 2018].

M, I.P., Udosen, A. & Okoro, C., 2014. Social-Cultural Impact on Women Education and Employment in Emouha Local Government Area of Rivers State, Nigeria. Scholarlink Research Institute Journals, 05(02), pp.179-83. Available at: https://pdfs.semanticscholar.org/f65d/9d02aae8f2d452be9875b5e0c6d7e93f3390.pdf [Accessed 13 April 2018].

Nagel, K., 2015. Relationships between unemployment and economic growth – the review (results) of the theoretical and empirical research. Journal of Economics and Management, 20(02), pp.64-79. Available at: https://www.ue.katowice.pl/fileadmin/_migrated/content_uploads/05_23.pdf [Accessed 13 April 2018].

Saleh, A., 2018. Kuwait unemployment rate remains at 2.2 percent. [Online] Available at: https://news.kuwaittimes.net/website/kuwait-unemployment-rate-remains-2-2-percent/ [Accessed 12 April 2018].

Statista, 2017. Kuwait: Unemployment rate from 2007 to 2017. [Online] Available at: https://www.statista.com/statistics/438871/unemployment-rate-in-kuwait/ [Accessed 13 April 2018].

The Public Authority for Civil Informaion, 2018. Gender By Nationality and Age and Governorate. [Online] Available at: https://stat.paci.gov.kw/englishreports/ [Accessed 14 April 2018].

World Bank, 2018. Unemployment , youth female (% of female labor force ages 1-24) (modeled ILO estimate). [Online] Available at: https://data.worldbank.org/indicator/SL.UEM.1524.FE.ZS [Accessed 13 April 2018].

World Population Review, 2018. Kuwait Population 2018. [Online] Available at: https://worldpopulationreview.com/countries/kuwait-population/ [Accessed 13 April 2018].

 

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