1.2.2 Employment Flashcards
What is the LFS?
- Labour Force Survey by International Labour Organisation
- 60,000 households surveyed quarterly about employment composition of households
- Unemployed means to be without a job, want a job and actively sought work in the last 4 weeks and able to start within two weeks or have found a job and waiting to start it in the next two weeks
- All EU members obliged to do regular surveys
- Uses ILO rules and definitions from the UN so comparable
Pros:
- Comparable
- Criteria does not change really so time series comparisons
- Rich data on many aspects of the labour market
Cons:
- Sampling errors and inequalities
- Costly and time consuming
- Only done quarterly
What is the claimant count?
- Monthly count of those who claim job seekers allowance and unemployment benefits
- Accurate and up to date
- Not able to use international comparisons
- Easy to classify if someone seeking work or not
- Easy to see regional disparities and calculated monthly
Cons:
- Lots of unemployed people who do not meet unemployment benefits
- May be too proud to claim
Differences between CC and LFS?
Definition of unemployed:
LFS - without job, looking in past 4 weeks, able to start in 2 weeks or waiting to start job in 2 weeks
CC: NIC contribution and household earnings criteria eligible to claim JSA
Age:
LFS: 16+
CC: 18-65
Students:
Counted in LFS, not in CC
Part time:
LFS: anyone working at all not counted, some counted in CC if under 16 hours
What is underemployment?
-People are looking for job or actively searching for a job with longer hours than their current job and so are under utilised in terms of ability.
What are the causes/types of unemployment?
Cyclical - weak AD in economy reduces demand for labour causing contraction in output and so workers are laid off as a result - derived demand
Frictional: workers seek a better job or are in between jobs - usually temporary and exists at YFE - always some sort of frictional unemployment
Structural: permanent change in sectors or regions, possibly if there is a lack of suitable skills for the jobs, deindustrialisation or other structural changes - unemployment/poverty trap?
Seasonal unemployment - tourism, farming, retailing for Christmas
What is classical unemployment?
-Trade unions push up wages above free market equilibrium causing the supply to be greater than the demand for labour
Minimum wages has the same effect
-Monopsony employers can force employment lower than market equilibrium
What can cause changes in the workforce?
- Role of women
- Discrimination
- Women take lower wages for family break
- Immigration
- UK immigration rose from 1m in 1997 to 3.2m in 2015 - 10% of labour market made up
- Retirement age - gradually increasing and no laws for fixed age
What is hidden unemployment?
Those who don’t work
- Lost hope
- Lost JSA
- Only work if easy
- Can’t legally work
- Part time who want to work fully time
- Self employed working few hours
- In the poverty trap as lose more benefits than gain wages
- Students
- Looking after family and homes
- Chronic illnesses
- Retired early
What is long term unemployment
- Out of work for at least a year
- Structural problem in labour market - longer without, harder to get another job
- Skills worsen due to inactivity and motivation falls, leading to hysteresis - output produced by labour force falls as workers are less skilled
- Employers favour those more frequent in work
Why has there been a fall in employment since the crisis?
- Part time work as lower consumption in short term
- Self employment - hard to calculate incomes and effects on consumption however 1/3 of new businesses fail in 2 years - new firms necessary to grow however
- Effects not worked through - gets worse before better
- Firms decline slowly as fuelled by wasting capital and bailouts of debt, called zombie firms
- Low real wages - cheaper for firms to take workers than invest in capital and hold onto unproductive labour than make redundant
- Misallocation of capital - low interest rates possible for unproductive firms to stay in business rather than use capital for better use - zombie firms
- Lack of innovation - UK innovation failure and growth of productivity slowed
What is the sticky wages theory?
-Wages don’t tend to fall when there is reduced demand for labour as there are fixed barriers such as NMW, trade unions, contracts etc.
What are the costs of unemployment?
- Slower growth
- Risk of deflation as AD falls
- Inequality
- Erosion of human capital, long term unemployment
- Fiscal budget costs due to benefits and tax revenues fall
- Externalities from social problems
- Loss of work experience
- Lose incomes, SOL - feeling of failure
- Inside PPF and GDP lower than should be
- Unemployed resources (YFE)
- Workless areas
- Reduced human capital
- Reduced productivity
What are the policies to reduce unemployment?
- Demand side:
- Stimulate spending: low interest, monetary policy - depreciate exchange rate
- Invest in infrastructure
- Invest in education and training
- Immigration laws eased
- Cutting costs:
- Reduce national insurance contributions
- Financial support
- Special economic zones
Competitiveness:
- Reduce corporation tax
- Tax incentives for innovation and research
- Expansion of apprenticeship programmes
Geographical mobility:
- Rise in house building
- Transport infrastructure
- Encourage start ups of new firms and expansion
Work incentives:
- NMW
- Increase tax free allowance - reduce poverty trap
- Welfare reforms to reduce poverty trap
What are the impacts of falling unemployment?
Benefits:
- Increased employment
- More in work
- Reduce cost of high unemployment
Cons:
- Spending from expanding labour - current account
- Demand and cost pull inflationary pressures
- Less spare labour means rise in unfilled vacancies - labour shortages
What is the role of migration in the UK labour market?
- 17% of labour force born abroad
- EU 2.2m people
- Non EU 1.2m people
- Employment rate for male migrants was 83% and female migrants 66%
Impact depends on relative skills of the migrants and the characteristics of the host economy.
