2.1.3 Employment

Question 1

Who is considered to be unemployed?

Answer 1

Someone who is not working but are actively seeking work.

Question 2

What are the two ways of defining unemployment?

Answer 2

1) The level of unemployment is the number of people who are looking for a job but cannot find one.

2) The rate of unemployment is the number of people out of work as a percentage of the labour force.

Question 3

When is the employment rate used?

Answer 3

To make comparisons between countries, as different countries have different population sizes.

Question 4

The claimant count

Answer 4

The number of people claiming unemployment-related benefits from the government.

This includes people who claim Jobseekers’ Allowance (JSA), Universal Credit and smaller groups of additional claimants.

Question 5

Advantages of the claimant count

Answer 5

• This data is easy to obtain – you just count the number of people claiming the unemployment-related benefits.
• There’s no cost in collecting the data as it is recorded when people apply for the benefits.

Question 6

Disadvantages of the claimant count

Answer 6

• It can be manipulated by the government to make it seem smaller – for example, a change in the rules (e.g. raising the school leaving age to 19) could reduce the number of people who could claim benefits, which would make it seem that unemployment was falling.
• It excludes those people who are looking for work but are not eligible to (or choose not to) claim any benefits.

Question 7

The Labour Force Survey

Answer 7

The International Labour Organisation (ILO) uses a sample of the population. It asks people who aren’t working if they’re actively seeking work. The number of people who answer ‘yes’ are added up to produce the ILO unemployment count.

Question 8

Advantages of The Labour Force Survey

Answer 8

• It’s thought to be more accurate than the claimant count.
• It’s an internationally agreed measure of unemployment, so its easier to make comparisons with other countries.

Question 9

Disadvantages of The Labour Force Survey

Answer 9

• It’s expensive to collect and put together the data.
• The sample may be unrepresentative of the population as a whole – making the data inaccurate.

Question 10

The cost of unemployment

Answer 10

1) A high rate of unemployment suggests that an economy is doing badly.

2) Unemployment will lead to lower incomes and less spending. This will have an impact on companies too – they might sell fewer, or need to cut prices and make less profit.

3) Unemployment means there is unused labour in the economy, so fewer goods and services can be produced.

4) It also means the government has extra costs, such as welfare benefits and less revenue because less tax is paid.

Question 11

Full employment

Answer 11

Governments will aim for full employment, which is where everybody of working age (excluding students, retirees, etc.) who wants to work, can find employment at the current wage rates.

Full employment doesn’t mean everyone has a job – in most economies there will always be people between jobs.

Question 12

Why do governments want full employment?

Answer 12

It maximises production and raises standards of living in the country.

Question 13

Effect of unemployment on the PPF

Answer 13

If there’s unemployment in an economy then it won’t be operating at full capacity, so it’ll be represented by a point within the PPF curve (e.g. Point A). A full employment the economy can operate at full capacity, so it can be represented by a point on the PPF curve (e.g. Point B).

Question 14

Under-employment

Answer 14

When someone has a job, but it’s not a job that utilises that person’s skills, experience or availability to the best effect.

• For example, a qualified accountant serving drinks in a pub would count as under-employment, as might someone who could only find part-time employment when they actually wanted a full-time position.

Question 15

Labour is derived demand. What does this mean?

Answer 15

An employer’s demand for labour is derived from consumers’ demand for goods/services. So when demand in the economy is law (when there is negative economic growth), unemployment will rise – but when demand is high, unemployment will fall (when there is positive economic growth).

Question 16

Types of unemployment

Answer 16

• Structural unemployment
• Cyclical unemployment
• Frictional unemployment
• Seasonal unemployment
• Real wage unemployment

Question 17

Structural unemployment

Answer 17

Structural unemployment is caused by a decline in certain industry or occupation – usually due to a change in consumer preferences or technological advances, or the availability of cheaper alternatives.

It often affects regions where there’s a decline in traditional manufacturing (e.g. shipbuilding or the steel industry) and it’s made worse by labour immobility.

Question 18

Why might the problem of structural unemployment become more common in the future.

Answer 18

• Technological change in both products and production methods is accelerating quickly. This will speed up the decline of out-of-date industries and reduce the number of workings needed to make products.
• Consumer spending is more likely to change as consumers are better informed (through the internet and social media) than ever before – making them more likely to switch to lower prices or higher quality goods.

Question 19

Why might the problem of structural unemployment become more common in the future.

Answer 19

• Technological change in both products and production methods is accelerating quickly. This will speed up the decline of out-of-date industries and reduce the number of workings needed to make products.
• Consumer spending is more likely to change as consumers are better informed (through the internet and social media) than ever before – making them more likely to switch to lower prices or higher quality goods.

Question 20

Types of labour immobility

Answer 20

• Occupational immobility
• Geographical immobility

Question 21

Occupational immobility

Answer 21

Where workers in certain jobs don’t have the skills required to be able to do the jobs that are available.

Question 22

Geographical immobility

Answer 22

Where workers are unable to leave a region which has high unemployment to go to another region where there are jobs. This might be because they cannot afford to move to a different region, or they have family ties.

Question 23

Cyclical unemployment

Answer 23

Cyclical unemployment (or demand-deficient unemployment) happens when the economy is in a recession – when aggregate demand falls, employment will fall too.

A country suffering from a negative output gap is likely to have cyclical unemployment.

Cyclical unemployment can affect any industry.

Question 24

Frictional unemployment

Answer 24

Frictional unemployment is the unemployment experienced by workers between leaving one job and starting another.

Even if an economy is at a full employment, there will be some frictional unemployment, as there are always some employees changing jobs.

Question 25

The length of time people spend looking for a new job depends on what factors?

(These are affect the level of frictional unemployment).

Answer 25

• In a boom, the number of job vacancies is much higher. So frictional unemployment is likely to be short term.
• In a slump, frictional unemployment could be much higher as there is a shortage of jobs.
• Generous welfare benefits will give people less incentive to look for a new job, or they can mean people can afford to take their time to look for a good job – so the time spend between jobs may increase.
• The quality of information provided to people looking for jobs is important. If people don’t know what jobs are available or what skills they need to get the job they want, then they’re likely to remain unemployed for longer.
• Occupational and geographical labour immobility will also affect the length of time between jobs.

Question 26

Seasonal unemployment

Answer 26

Seasonal unemployment occurs because demand for labour in certain industries won’t be the same all year round.

For example, the tourism and farming industries have ‘peak seasons’ where the need for labour is much higher than at other times of year. Retail is also affected by seasonal unemployment (many shops will be particularly busy at Christmas, for example).

Seasonal unemployment tends to be regular and predictable, and it only affects certain industries.

Question 27

Real wage unemployment

Answer 27

Real wage unemployment is caused by real wages being pushed above the equilibrium level of employment (where labour demand equals labour supply). It’s usually caused by trade unions negotiating for higher wages or by the introduction of a national minimum wage.

Introducing a national minimum wage above the equilibrium wage rate (We) would cause the supply of labour to increase from Qe to Qs and demand to fall from Qe to Qd. This would then cause unemployment of Qs to Qd, due to the excess supply.

However, a rise in productivity or in consumer spending would increase the demand for labour (causing the labour demand curve to shift to the right) and this would reduce the size of the increase in unemployment.

Question 28

Net migration

Answer 28

The difference between inward migration and outward migration (emigration)

Question 29

How does migration affect unemployment levels?

Answer 29

Immigrants usually fill vacancies that the local citizens cannot (or will not) fill. - These tend to be manual labour, dangerous, and low skilled jobs.
The increased supply of labour may push down wages in the economy, especially for low skilled jobs.

Lower average wages are an incentive for employers to hire more workers, leading to an increase in employment.

Immigration results in an increased population which increases consumption in the economy. Greater output requires more labour so it creates more jobs

Question 30

Cost of unemployment on individuals

Answer 30

• Loss of income
• Health issues
• Mental instability
• Sense of failure
• Marital failure
• Stress increases
• Suicide

Question 31

Cost of unemployment on firms

Answer 31

• Loss of sales revenue
• Loss of output/production
• Changes the skill level in the economy

Question 32

Cost of unemployment on the government

Answer 32

• Increased spending on benefits
• Less tax revenue
• Increased spending on retraining

Question 33

Cost of unemployment on the economy

Answer 33

• Increased crime
• Vandalism
• Increased anti-social behaviour
• Increased homelessness

Question 34

Cyclical unemployment on a PPF

Answer 34

Cyclical unemployment is labelled at point X, not on the PPF curve.

Question 35

Cyclical unemployment on a economic growth graph

Answer 35

Question 36

How can social policy be used to change unemployment rates?

Answer 36

Social policy can affect unemployment rates because it can increase/decrease the labour market.

For example:

Question 37

Benefits of unemployment

Answer 37

In some circumstances, unemployment can motivate individuals to retrain and improve their skills, increasing their ‘employability’.

Competition – in theory better trained people will take available jobs, leaving those least productive and least skilled/trained unemployed.