2.1 - Employment and unemployment Flashcards
measures of economic performance
Measures of unemployment
- the claimant count
- the International Labour Organisation (ILO) and the
UK Labour Force Survey
Claimant count
The claimant count is a measure of unemployment based on the number of people who are claiming unemployment-related benefits, such as Jobseeker’s Allowance.
Why does the claimant count provide a narrow definition of unemployment?
It only includes those actively seeking and receiving government benefits.
How does the International Labour Organisation (ILO) define unemployment
The ILO defines unemployment as individuals of working age who are without work, actively seeking work, and available for work.
What is the primary source of unemployment data in the uk
The UK Labour Force Survey is the primary source of unemployment data in the UK and follows the ILO definition.
What is the benefit of the International labour organisation and the UK labour force survey for measuring unemployment?
It provides a broader and more comprehensive picture of unemployment, including those not eligible for benefits.
Unemployment
Refers to individuals of working age who are not currently employed but are actively seeking and available for work.
Underemployment
Occurs when individuals are employed but their job does not fully utilise their skills and qualifications. This can result in part-time work, low wages, or jobs below their skill level.
Significance of changes in employment rate
Employment Rate: Measures the proportion of the working-age population in employment. A rising employment rate indicates economic growth.
Significance of changes in unemployment rate
Unemployment Rate: Measures the proportion of the labour force actively seeking work. A high unemployment rate indicates economic problems as there aren’t enough jobs available
Significance of changes in inactivity rate
Measures the proportion of the working-age population that is not in the labour force. It can indicate a lack of job opportunities or demographic factors.
What are some examples of hidden unemployment that the claimant count and the international labour organisation/UK labour force survey do not account for, meaning unemployment figures are underestimated?
Those who are…
- working part time but would like to work full time
- on government training schemes who would prefer employment
- classed as sick or disabled
- who aren’t actively looking for jobs but would take a job if offered or are in education
because they can’t get a job
Economic inactivity
- People who are of working age but are not currently seeking work for a variety of reasons (childcare, retirement, full-time study)
- Economically inactive individuals are not part of the workforce
Causes of unemployment
- structural unemployment
- frictional unemployment
- seasonal unemployment
- demand deficiency and
cyclical unemployment - real wage inflexibility
Structural unemployment
- Occurs when there is a mismatch between the skills of the workforce and the requirements of available jobs.
- Caused by the changing structure of the economy
Why is structural unemployment a serious form of unemployment
- It is a long term decline in demand in an industry leading to reduction in employment perhaps because of increasing international competition or technology.
- It is where the demand for labour is lower than the supply in an individual labour market e.g. ship building.
Frictional Unemployment
Temporary unemployment when individuals are moving between jobs or entering the workforce.
(people need to move jobs so its a sign of a healthy labour market)
Seasonal unemployment
Unemployment at different points in the year and is linked to seasonal variations in demand, e.g., tourism or agriculture.
Demand Deficiency (Cyclical) Unemployment
Arises from a lack of aggregate demand during economic downturns.
- There is a negative output gap, falling AD, spare capacity and so there is not enough demand to create enough jobs.
Real Wage Inflexibility
When wages are too high, it can lead to job cuts or an unwillingness to hire as labour becomes a more expensive cost of production and firms aim to maintain profitability.
Significance of Migration and Skills for Employment and Unemployment:
- Migration can impact employment by changing the supply of labour in specific regions.
- Immigrants may fill labour gaps, but this can also lead to wages decreasing (as supply has increased - more competition)
- Skills are crucial for employment. A highly skilled workforce is more adaptable and less prone to unemployment in a changing economy.
Effects of Unemployment: consumers
- Reduced income can lead to lower consumer spending, lowering AD and impacting businesses.
- declined living standards?
- They suffer from less choice. The quality of goods may also
decrease. - The unemployed consumers lose out as they have less available to spend.
- However, firms may lower prices and put on sales in order to increase demand for
their product.
Effects of unemployment: Firms
- There will tend to be a decrease in demand for their goods as people are receiving less income (but this depends on the
YED) and so this could lead to a fall in profit. - Long term unemployment can lead to loss of skills and reduce employability of
workers, so firms have a smaller pool of skilled people to employ. - They can offer low wages as people will take the job anyway because they know there is a lack of jobs so have few options.
Effects of unemployment: workers
- Lost income
> results in a decline in their living standards. - reduced job prospects,
- psychological stress.
> often suffer from the stigma of being unemployed
> may feel degraded by the process of signing on to receive benefits
> This can lead to
stress, marital breakdown, suicide, physical illness etc. - The long-term unemployed (those unemployed for more than 12 months) often find it more difficult to get another job as they lose skills.
- Those who are in jobs will suffer from lower job security and will fear being made redundant.
- See a fall in wages because the firm can easily find replacements due to large pool of labour and so there is an increase in competition for jobs
Effects of unemployment: government
- The reduced income results in a fall in tax revenues and higher spending on
welfare payments for families with people out of work, incurring an opportunity cost
as the money could be better spent elsewhere. - leads to an increase in the budget deficit so the government will have to raise taxation or scale back plans for public spending on public and merit goods and increase borrowing
Effects of unemployment: society
- Rising unemployment is linked to social deprivation.
> relationship with
crime and social dislocation (increased divorce rates, worsening health and lower life
expectancy). - Areas of high unemployment often see a fall in demand for local goods and services,
leading to a fall in income for those working in the services and sometimes further
loss of jobs. - It results in a loss of potential national output and represents an inefficient use of
scarce resources. - Taxpayers paying money to the unemployed is not a loss for the economy as it is a transfer payment but the economy is affected because there is a fall in national
output and the social costs of the unemployed e.g. violence and crime
What happens if people choose to leave the labour market permanently?
- If people chose to leave the labour market permanently, then this
will have a negative effect on LRAS and therefore damage the economy’s growth potential so the country is unable to achieve their desired PPF.
Real-World Example of high unemployment
During the 2008 financial crisis, structural unemployment increased as workers in declining industries (e.g., manufacturing) struggled to find jobs in growing sectors (e.g., technology). This highlighted the importance of retraining programs and skills development to address unemployment issues.
