Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof.

Ait Embarek Samia

Lesson 10 : Economic Crises 3- types of unemployment :

- unemployment and Inflation - Economists discuss various types of unemployment, including:
 Involuntary Unemployment:
Definition of Economic Crises: This type of unemployment encompasses all individuals capable of
An economic crisis is a sudden, unexpected event that causes a working, willing to work, actively seeking employment but unable to find
disruption to the economy. It is characterized by a significant decline in job opportunities within the prevailing wage conditions. Involuntary
economic activity, leading to job losses, business closures, and a decline in unemployment takes various forms, including the following:
living standards.  Frictional Unemployment: This type results from the movement of
workers, changes in their jobs or professions, or changes in their residential
Economic crises are usually caused by a combination of factors, including: areas. Individuals need to search for alternative employment, and the time
- External causes: such as wars, natural disasters, or political changes. spent in this process is referred to as frictional, transitional, or temporary
- Internal causes: such as financial contractions, mass bankruptcies, or unemployment.
changes in government policies.  Structural Unemployment: Arises due to structural imbalances in the
The world has witnessed numerous economic crises caused by imbalances. economy or the labor market. It includes cases where workers lose their jobs
such as the Great Depression, and the financial crisis. We will briefly touch due to technological advancements.
on two general crises: unemployment and inflation.  Cyclical Unemployment: Occurs due to changes affecting economic
activity, increasing during periods of recession and decreasing during
I- Unemployment: periods of prosperity. Examples include the global depression crisis that
1- Definition of Unemployment : According to the International Labour affected production, trade, and banking sectors.
 Seasonal Unemployment: This type results from a lack of demand for
Organization, an unemployed person is someone who is capable of work,
willing to work, and actively seeking work and requesting work at the labor during specific seasons, indicating fluctuations in labor demand due
prevailing wage rate.but unable to find employment. to varying production levels.
This definition includes people who are looking for work for the first time,  Voluntary Unemployment:
people who have lost their jobs, and people who have left their jobs to look Voluntary unemployment refers to the presence of individuals who are
for better work. capable of working, actively seeking employment, but choose not to work
due to their lack of desire to work under the prevailing wage conditions in
2- How to Measure Unemployment ?: The unemployment rate is the economy, even when job vacancies are available.
calculated using the following formula:
 Disguised Unemployment: Occurs when individuals work below their
Unemployment rate =(Number of unemployed / Total labor force) x100 supposed productive capacity or when the employment of certain workers
doesn't contribute to a net or additional output. Employing them may result
in an overall decrease in total output. Or the number of employees is more
- Number of unemployed: is the number of people who are not working
than the organization’s needs.
and actively looking for work for at least 27 weeks.
 Blatant Unemployment: Refers to the situation where individuals are
- Total labor force: is the number of people of working age (16 years old
capable and willing to work but cannot find employment. It signifies a lack
or older) who are either working or actively looking for work.
of viable job opportunities for those capable of working.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

4- Causes of Unemployment: 5.2- Labor Market Effects : The most imprtant effects are:
Here's a breakdown of some key causes: - Skill erosion: Unemployed individuals face skill deterioration and
- Recession: Slowed economic activity leads to layoffs and more jobless. knowledge gaps if they stay out of work for extended periods, making it
- Technology: Automation replaces human labor in certain sectors, raising harder to re-enter the workforce, even when jobs become available.
unemployment. - Wage pressures: High unemployment rates can put downward pressure
- Trade: Increased competition forces businesses to downsize or relocate, on wages, as employers have more bargaining power when selecting from
causing job losses. a larger pool of job seekers.
-Government policies: Unintended consequences of policies like minimum - Long-term negative impact: Prolonged unemployment can lead to long-
wage hikes or trade restrictions can impact job creation. lasting negative consequences for individuals, including decreased earning
- Skills mismatch: Lack of required skills for open positions creates potential, mental health issues, and social exclusion.
frictional unemployment. 5.3- Social and Political Effects : The most imprtant effects are:
-Demographics: Aging or rising population without enough jobs - Increased crime rates: Studies suggest a correlation between high
contributes to higher unemployment rates. unemployment rates and higher crime rates, potentially due to financial
-Labor market rigidities: Hiring/firing restrictions hinder businesses' distress and social dislocation.
adaptation to changing conditions, increasing unemployment. - Reduced social mobility: When unemployment disproportionately affects
- Personal choices: Temporary unemployment due to education, childcare, specific demographics, it can exacerbate existing social inequalities and
or health issues. hinder upward mobility.
- Natural disasters: Disruptions caused by disasters lead to temporary job - Negative psychological impact: Joblessness can contribute to anxiety,
losses. depression, and reduced self-esteem, further hindering employment
- Political instability: Investor discouragement and hindered economic prospects.
growth lead to higher unemployment - Migration in Search of Employment: Unemployed individuals may
choose to migrate in search of better job opportunities, often leaving their
5- Effects of unemployment : home regions or countries.
5.1- Economic Effects : The most imprtant effects are : - Family Disintegration: Family breakdown can occur, with the main
- Reduced output and consumption: Fewer workers mean less production reason being the inability to secure employment opportunities, putting strain
of goods and services, which shrinks overall economic output (GDP). This on familial relationships.
decline in supply also restricts consumer spending, creating a negative
6- solutions of unemployment :
feedback loop.
- Promoting Investments: Encouraging both domestic and foreign
- Loss of tax revenue: With lower employment, governments receive less
investments and increasing government spending to create new job
income from taxes like income and payroll taxes, hindering their ability to
opportunities.
fund essential services and infrastructure projects.
- Early Retirement: Encouraging early retirement to create vacancies for
-Increased government spending: Unemployment often necessitates
younger job seekers.
increased government spending on unemployment benefits and social safety
- Unemployment Insurance: Establishing unemployment insurance
nets, adding to the fiscal burden.
programs to provide financial support to the unemployed.
- Encourage youth entrepreneurship: Support young people to create small
businesses that rely on local resources to create new job opportunities.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

- Provide accurate information about the labor market: Make available II- Inflation
reliable information about the labor market requirements to promote 1- Definition of Inflation :
informed career decisions. Inflation, in economics, refers to a sustained increase in the general
- Reform the education system: Develop education to meet the needs of price level of goods and services in an economy over a period of time. .
the labor market to provide graduates with the required skills. This means that a money loses purchasing power over time, and we need
-Link educational and economic institutions: Promote cooperation more money to buy the same amount of goods and services.
between education and businesses to provide students with opportunities for
practical training. Here are some key points to understand the definition of inflation:
- Review wage policy: Reconsider the level of wages to improve the living
standards of workers and attract more labor to formal jobs. - General price level: Inflation is not just about the price of one specific
- Benefit from the experiences of other countries: Study the policies of good or service going up. It's about a broad increase in prices across the
successful countries in managing the labor market and adjust them to suit entire economy.
our national economy. - Sustained increase: Inflation is not just a temporary blip in prices. It's a
- Streamline government spending: Direct government spending towards continuous trend of prices rising over time.
supporting job-generating sectors and small and medium-sized enterprises. - Rate of increase: The rate of inflation is measured as a percentage, and it
- Encourage young people to work in rural areas: Encourage graduates can vary from year to year and even month to month.
to enter new fields of work in rural areas and launch their own projects. - Impact on purchasing power: As prices rise, the value of money
- Follow up with beneficiaries of support: Monitor loan, land, and tax decreases. This means we can buy less with the same amount of money than
exemption projects to ensure their success and sustainability of the job we could before.
opportunities they create. 2- How to Measure Inflation?:
- Support labor-intensive sectors: Focus on supporting and developing Price index numbers are used to measure inflation. These indices
sectors that provide a large number of jobs, such as agriculture and provide relative and time-based averages of prices for various types of
construction. goods or a combination of goods. They are expressed in monetary units to
measure the purchasing power of individuals, projects, and different sectors.
From this definition, we can deduce the following:
 Price indices are relative figures, comparing price developments to a base
year characterized by stability.
 Price indices are time-based, as price developments are measured over a
period of time, making it a fundamental variable.
Some common types of price indices include the Wholesale Price Index
(WPI), Consumer Price Index (CPI), and Cost of Living Index.

3- Types Of Inflation :
- Creeping inflation: is characterized by a gradual and slow rise in prices,
which does not have a significant impact on the purchasing power of money.
If the annual inflation rate is around 2-3%, and prices for most goods and
services increase slowly without causing significant disruptions in the
economy, it can be characterized as creeping inflation.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

- Stagflation: A type of inflation with a rate between 10% and 100% per grows at an extremely rapid rate. This excess money in circulation can
year. Stagflation is characterized by a faster rise in prices than creeping increase demand for goods and services while their supply remains
inflation, leading to a noticeable erosion of the purchasing power of money. relatively constant, causing prices to rise.
- Hyperinflation: A type of inflation with a rate of more than 100% per - Lack of stability: When a nation experiences instability, such as policy
year. Hyperinflation is characterized by a rapid and uncontrolled rise in turmoil, social unrest, or uncertain economic policies, it can disrupt various
prices, leading to the loss of significant value by the currency. sectors, such as production, investment, and trade. This often leads to an
- Open inflation: A type of inflation that occurs in the presence of economic increase in prices of goods and services, which causes inflation.
imbalances, such as a shortage of production or an increase in demand.
Open inflation is characterized by a simultaneous rise in prices with rising 5- Effects of inflation : Inflation can have negative effects on
unemployment rates and disguised unemployment. individuals, businesses, and the economy as a whole, including:
- Suppressed inflation: A type of inflation that occurs in the presence of - Decreased purchasing power: This means that money buys less goods
government controls on the prices of goods and services. Price controls and services, leading to a decrease in living standards, especially for people
artificially curb the rise in prices, leading to the emergence of shortages in with low incomes.
goods and services and the spread of the shadow economy. - Redistribution of wealth: Unexpected inflation can lead to redistribution
- Hidden inflation: A type of inflation that occurs when the government of income and wealth, as some people benefit more from rising prices than
imposes strict controls on prices. Price controls force producers to sell their others.
products at prices below their market value, leading to a decline in product - Higher interest rates: Central banks often raise interest rates to control
quality. inflation, which leads to higher borrowing and consumption costs.
- Reduced investment: Inflation can lead to reduced investment, as
4- Causes of Inflation : investors fear losing money due to rising prices.
- Demand-pull inflation: This occurs when the total demand for goods and - Affects the balance of payments as a result of the increase in local prices
services in an economy exceeds the available supply, causing prices to rise. compared to foreign prices.
This can be caused by factors such as strong economic growth, increased In general, high inflation is considered to be a negative phenomenon,
government spending, or overseas growth. while moderate inflation can have some positive effects. However, even
- Cost-push inflation: This occurs when the total supply of goods and moderate inflation can have negative effects on people who have fixed
services in the economy that can be produced (aggregate supply) falls, incomes, such as retirees and government employees.
leading to an increase in prices. This can be caused by factors such as an
increase in production costs, including raw materials and wages, or supply 6- Economic Policies to Treat Inflation:
disruption in specific industries. There are two main types of economic policies used to treat inflation:
- Wage increases: Experts say that wage increases can impact inflation both
positively and negatively. The relationship between wage increases and 6.1- Fiscal policies : are policies that the government undertakes to
inflation is complex and depends on various factors, such as the labor change the level of spending and taxation. Governments can use
market and inflation expectations. contractionary fiscal policies to reduce aggregate demand in the economy.
- Money issuance: This is inflation resulting from the issuance of money in Contractionary fiscal policies include:
quantities exceeding the national economy. This often leads to what is - Cutting government spending: The government can cut spending on
known as hyperinflation. Hyperinflation occurs when the money supply public services and social programs.
- Raising taxes: The government can raise taxes on businesses and
individuals.
 Course: Introduction to Economics First Year LMD - common core Prof. Mecerhed Bilel / Prof. Ait Embarek Samia

- Wage freeze policy : aims to prevent workers from negotiating for a wage
increase, which leads to a decrease in demand for goods and services. This
can be effective in reducing inflation.
6.2- Monetary policies : are policies that the central bank undertakes to
change the level of interest rates. Central banks can use contractionary
monetary policies to raise interest rates. This makes borrowing more
expensive, which leads to a decrease in demand for goods and services.
Contractionary monetary policies include:
- Raising interest rates: The central bank can raise the benchmark interest
rate, which is the interest rate that commercial banks charge each other for
loans from the central bank.
- Open market policy (Selling assets): The central bank can sell assets,
such as government bonds, which can lead to higher interest rates and a
decrease in demand for goods and services.
- Reducing the money supply : can reduce aggregate demand for goods
and services by making money more scarce. This in turn can lead to lower
prices.
- increasing reserve requirements : reduces the amount of money
available to be borrowed from banks, which can lead to higher interest rates
and a decrease in demand for goods and services.

* Contractionary economic policies can be effective in reducing

inflation, but they also have negative side effects. They can lead to slower
economic growth and increased unemployment. Therefore, it is important
to use contractionary economic policies carefully to avoid negative side
effects