Albania is one of the economically last developed countries in Europe. After the collapse of the communist regime, Albania achieved an economical growth, but poverty level is still high. There is a strong link between poverty and unemployment because the lack of employment is one of the main determinants of poverty. Albania is considered as a poor country, that is why a high level of unemployment exists. This is a phenomenon that disquiets the Albaniaï¿½s society, so it is important to discus about this topic. In this paper we are going to talk about the unemployment concept, how it is caused and its effects on the economy and society. Also, we are going to discus about the unemployment rate of Albania, during years and in comparison with the other countries of Europe. Another point that will be shown in this paper is of course the precautions taken by the government to reduce the unemployment rate. And finally we are going to show the conclusions of our work.
2. UNEMPLOYMENT CONCEPT
Unemployment is the time period when a person isnï¿½t actually working, but available for work and currently looking for work. The working age population includes people from 16 years old to 65 years old for men and 60 for women. It consists of two groups: active population (labor force) and inactive population.
Labor force includes employed and those in search of employment (the unemployment people). In this assessment should be taken into account the difference between: -Individuals currently working, considered those who accomplish a payable work of residence, even if temporally absent from work.
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Outside the labor force are classified people that are in working age but they arenï¿½t currently working or they donï¿½t want to. This group consists of students, the invalids, students of working age, those who perform military service, and persons not currently looking for work. The flow of movement between these categories can be expressed with the Fig.2, where:
As we can see on Table1 that the lowest rate of unemployment during the last 10 years is 12.5% in 2009, while the highest is 17% in 2002 and 2003. It is noted that from 2000 to 2003 the unemployment rate has been increasing. While since 2004 to 2009 the unemployment rate has been reducing. However these are high digits. Our country suffers from the phenomenon of unemployment.
According to the report of the Central Intelligence Agency (CIA) official unemployment rate is rather deformed three times lower than the real rate of unemployment. There are at least three reasons that make the data on unemployment rate not to be real. The main reason is informality, which is the number of employees who arenï¿½t declared from the employer. Also, there are the unemployed who do not plead their self as unemployed. In this case they do not appear in official records as unemployed. This is a problem associated with lack of functionality and efficiency of office work. In the calculation of the unemployment rate also isnï¿½t disregarded unemployment in agriculture. Rural areas, in which lies the main map of poverty in the country, are supposed with full employment, since no one is registered as unemployed. According to the report of CIA about 58% of the labor force in the country is concentrated in agriculture, 27% in the service sector and only 15% in industry. According to the report, having such a large labor force in agriculture, when this sector provides 21.7% of Gross Domestic Product and almost zero unemployment rate, itï¿½s explained why according the official methodology, the unemployment rate is only 12.5%. So, these are some of the reasons that make the unemployment rate not to be real.
Now we will compare the unemployment rate of Albania with the unemployment rate of the other countries of the region and with the developed countries of Europe for the year 2009 (Fig.3). Albania is a country that has experienced a long transition, so its economy is not very developed. The Albania’s unemployment rate is round 13%. This rate is low compared with countries of the region as Macedonia and Bosnia and Herzegovina with unemployment rates respectively 34% and 29%; is nearly the same levels with Montenegro, Croatia or Turkey; and is higher than the unemployment rate of the developed countries such as Germany, Italy, France, United Kingdom, Netherlands, Norway, Denmark etc. So Albania has a high level of unemployment, but there also other countries of the region with higher levels of unemployment.
4. TYPES OF UNEMPLOYMENT
Unemployment is an inevitable process for each country, so that we can find it among each person in different kinds. The most kind of unemployment we can find in Albania are:
4.1. Frictional unemployment, which is created as a result of continued movement of workers from one job in search of another job, which is better than the first. This kind of unemployment is inevitable and economically justifiable, as leading to more efficient redistribute of labor resources. In this group are also included students who have just been graduated and are looking for a job, or women that have been away for a while from the labor market. These people are considered as volunteers unemployed.
4.2. Structural unemployment, that occurs due to changes in demand and the supply to work as a result of fundamental changes occurring in the basic branches of economy. If an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while their skills (including job-searching skills) become ï¿½rustyï¿½ and obsolete. This means that they may not fit the job vacancies that are created when the economy recovers. This kind of unemployment can also be caused by technological progresses, since it means that fewer workers are needed to produce the same level of output every year.
4.3. Cyclical unemployment is associated with declining demand for certain goods and services, especially at the stage of economic downturn, which leads to the decline in demand for manpower in the factories that manufacture these products or services. This is caused by a business cycle recession and wages not falling to meet the equilibrium level.
4.4. Seasonal unemployment, which is related to seasonal nature of the product or service, for example in the branches of the construction industry, tourism, etc. It is linked to certain kind of jobs.
4.5. Voluntary unemployment includes that group of people who choose not to work for different reasons, such as economical/financial reasons or any other.
4.6. Hidden unemployment is the unemployment that does not appear in government statistics, due to the way the statistics are collected. Only those who have no work but are actively looking for work are counted as unemployed. Those who have given up looking, those who are working less than they would like or those who work at jobs in which their skills are underutilized are not officially counted as unemployed, though in a sense they are.
5. CAUSES OF UNEMPLOYMENT
Unemployment is a process that is caused by different factors. Some of them relate to the general level of economic activity, others are the result of a failure of the labor market in an economy to work optimally.
First of all job supply is relatively not flexible, which means that there is not an equal proportion between supply and demand. This comes out of the imperfections in the labor market. A perfect labor market will always clear and all those looking for work will be working, so that supply equals demand. However if the market doesnï¿½t clear properly there will always be unemployed people, waiting to find a job. In Albania is very common to see students who have just been graduated but currently not working. All this is a result of high level of demand, but lower level of supply. The economical crisis has also affected in reducing the work places, which has increased the unemployment rate, resulting in a high level of job demand.
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Secondly, another factor that effects in the process of unemployment is certainly the low level wages. The lower the wages, the more dissatisfied the people will be, so that theyï¿½ll have to look for another job which gives them enough incomes to confront the living. The period of time till they find a job, may be as long as they are considered as unemployed. In Albania this problem is very common, since it is a country with low incomes which effect in the wages level that is not very high.
Another factor is of course technological changes. Technological improvements allow for economic growth which is a necessity for increased standards of living in an economy. This is a good effect, but can also result with unemployment. First because less workers are needed to produce the same level of output and second because this impact of technological changes on the unemployment rate is dependent not on the level and extent of this change, but also on the ability of the economy to accommodate the change. The economy must be able to upgrade the skills of the labor force and redesign firm organization if the technology improvements are to efficiently integrated into industries.
And finally we can mention peopleï¿½s preferences about the way they like to work and also the fact that there is poor information about the job opportunities. This will lead people taking a long time seeking for jobs, increasing so the level of frictional unemployment.
6. CONSEQUENCES OF UNEMPLOYMENT
Unemployment causes a lot of individual and social costs. A long period of unemployment reduces the human capital value and increases to malnutrition, illness, mental stress, and loss of self-esteem, leading to depression. Also another consequence of unemployment is that the unemployed people may lose their skills. At another point when a person is unemployed, he has lack of income. This causes less leisure. So the unemployment influences in the every-day life of the unemployed people.
Perhaps the main cost of unemployment is a personal one to those who are unemployed. However, if they suffer then the whole economy and society suffer. High unemployment can cause problems such as increased divorce, lower life expectancy and worsening health. Another problem is crime; if consumers possess less income than before, that is probable that crime levels will increase. Unemployment normally results in a loss of income and reduces the long run growth potential of the economy. The unemployed could be producing goods and services and if they aren’t, then GDP is lower than it could be. If some people choose to leave the labor market permanently because they have lost the motivation to search for work, this can have a negative effect on the economyï¿½s growth potential. As a result the whole economy and society suffer from people being unemployed.
Also high unemployment has an impact on government expenditure, taxation and the level of government borrowing each year. Tax revenue will fall because unemployed people aren’t earning, and they therefore aren’t paying tax. As they are spending less, they contribute less to the government in indirect taxes. The government has to pay out benefits to support the unemployed. The government loses out because of a fall in tax revenues and higher spending on welfare payments for families with people out of work. The result can be an increase in the budget deficit which then increases the risk that the government will have. Enterprises with higher employment are likely to do better and make better profits. If they make less profit because of unemployment, they may have fewer funds to invest. This rise of government expenditure and the fall in tax revenues may result in a higher government borrowing requirement
7. BENEFITS OF UNEMPLOYMENT
Unemployment may have advantages as well as disadvantages, for the entire economy. It may help avert inflation, which has damaging effects, by providing a reserve army of labor, which keeps wages in check.
Full employment and price stability are two central macroeconomic objectives of each government. To combat unemployment, people in charge of economic policies often seek to give an impetus to the economy. With the reduction of unemployment, the economic system is approaching full use of his skills and labor market begins to recover. Companies find a great difficulty in finding qualified workers and in terms of a high competition, salaries start to grow up. Thus, a low unemployment leads to rising wages, which increased by inflation, generates a rise in prices. There is thus an inverse relation between unemployment and inflation, which means that lower levels of unemployment will be associated with high levels of inflation. This relationship is called the Phillips curve, the name of the economist who analyzed the relationship between unemployment and inflation. His research shows the possibility of achieving a low inflation rate, but at a price – a higher level of unemployment. Data analyzed by Phillips found that wages can be stable for about 5.5% unemployment level. When the unemployment rate is at a point near zero value, the level of inflation is extremely high.
Unemployment rate to a zero level of inflation is called the natural rate of unemployment. For a low unemployment level, the level of prices tends to increase and to a higher level of prices tends to go down. Thatï¿½s the main benefit that unemployment insures, but its rate is different in different countries.
Everybody knows that Albania was the last of the central and eastern European countries to embark upon democratic and free market reforms. Thatï¿½s why it is not as developed as the other countries around it. Although Albaniaï¿½s economy has really improved over recent years, it is still considered as one of the poorest country in Europe. According to the government statistics, Albania experienced an average 6% annual GDP growth during the period time 2005-2009. During this time, fiscal and monetary discipline has kept inflation relatively low, averaging 2.9% per year. In 2009 inflation increased to 3.4%, public debt reached 55.9% of GDP and the growing trade deficit was estimated at 26% of GDP.
As we can see in Fig.4, during the period of time 2000-2009 the inflation rate has really changed. In 2000 the inflation rate has been very low, in proportion with the unemployment rate, which has been high, nearly 14%. Later, 2002-2003 shows the period of time where the inflation rate had its maximum. After this time the inflation has come down drastically in 2004 and from then it has been changing with low levels. In 2009 inflation rate was 3.4% regarding to the unemployment rate which was 12.5%. The government has to interact to keep these two economic factors in a balance.
8. PRECAUTIONS OF THE GOVERNMENT
The government has to interfere continually to reduce the unemployment rate. The Albaniaï¿½s government has taken some precautions to low-down the level of unemployment. We can mention the opening of new workplaces, such as in infrastructure. The last years the government has realized a lot of projects in infrastructure and in this way, there are opened new workplaces. Also the government has risen up the wages level for many profession categories and so the people are more motivated to work. The government has practiced training and program applications to boost employment.
Reforms in the fiscal system, in the improvement of the business environment by lowering taxes significantly, investments in infrastructure and the encouragement of foreign investments are the main factors that has contributed to the economic growth and, consequently, to the creation of new workplaces. So these are the main precautions that our government has taken to prevent and reduce the unemployment in Albania.
Unemployment is an inevitable process that happens in every country. It is caused by different causes, such as the level of wages, technological changes or job supply, and it brings lots of negative and positive effects. As negative we can mention individual, social and economic effects. And for positive effects (benefits) we can mention that unemployment averts the inflation, since they have an inverse relation between each other. This phenomenon is visible in every society, but it appears in different values. Although Albaniaï¿½s recent economic growth has reduced poverty level, it is still one of the countries with the highest rate of unemployment. This rate has been changing over years and certainly it has been reducing. In 2009 this rate was 12.5%. Itï¿½s not a low level, but anyway is the lowest level Albania has ever had in the last 10 years. This value matches with the inflation rate which was 3.4% in 2009. In comparison with the other countries of the Europe it is ranked the 6-th, not a good value, but it has been improving during years. A major effect in this improvement has given the government reforms in the fiscal system or by opening new workplaces, rising up the wages level etc.