2.1.3 Employment and Unemployment

Question 1

What does unemployment represent?

Answer 1

A waste of resources and so the level of unemployment is a good indicator of the country’s economy

Question 2

How is employment and economic growth linked?

Answer 2

Fast economic growth will lead to more jobs being created as more workers are needed to produce increasing goods and services

Question 3

What is the Claimant Count?

Answer 3

The Claimant Count is the number of people receiving benefits (such as Job Seekers Allowance)

Question 4

What is the Labour Force Survey (LFS)?

Answer 4

Is a sample of people living in households and asks questions about personal circumstances and activity in the labour market to class people as employed, unemployed or inactive by the ILO (International Labour Organisation) definition

Question 5

Comparisons between the Claimant Count and LFS: (2)

Answer 5

• Some people may not be included in the LFS unemployment measure but would be in the Claimant Count. For example; people working in the ​hidden economy or those who ​fraudulently claim benefits.
• ## Some people aren’t eligible for benefits but are classed as unemployed so would appear in the LFS but not the Claimant count. This can be if their partner is working, if they are looking for work along full-time study or if they are around State Pension Age. The ​LFS tends to be higher than the Claimant Count because of these reasons.

Question 6

How do both the Claimant Count and LFS underestimate the unemployment figure? (3)

Answer 6

• Don’t include working part time but would like to work full time
• On government training schemes who would prefer employment
• Classed as sick or disabled

Question 7

Who are the under-employed?

Answer 7

• Those who are in part time or zero hour contracts when they would prefer to be full time
• Those in jobs which do not reflect their skill level
• Not included in any unemployment statistics

Question 8

Effect of unemployment on consumers:

Answer 8

• If consumers are unemployed, they have less disposable income and their standard of living may fall

Question 9

Effects of unemployment on firms: (2)

Answer 9

• Firms will have a larger supply of labour to employ from, causing wages to fall, which would help firms reduce their costs
• Since consumers have less disposable income, consumer spending falls so firms may lose profits

Question 10

Effects of unemployment on workers: (2)

Answer 10

• Waste of workers resources

- Those in jobs are likely to see a fall in their wages as supply of labour increases

Question 11

Effects of unemployment on the government: (2)

Answer 11

• Government may have to spend more of JSA, incurring an opportunity cost
• Receive less revenue from income tax. and from indirect taxes on expenditure, since the unemployed have less disposable income to spend

Question 12

Effect of unemployment to society:

Answer 12

• Negative externalities in the form of crime

Question 13

What will increases in inactivity lead to?

Answer 13

It will decrease the size of the labour force, therefore causing a fall in the productive potential of the country, lower GDP and lower tax revenues as less people are working

Question 14

What will decreases in inactivity lead to?

Answer 14

Results in more people being unemployed if there are no jobs available to them

Question 15

Structural unemployment (2)

Answer 15

• Those workers who are unemployed due to permanent shifts in how the economy works, like technological change
• Lack of geographical and occupational mobility: if workers do not have the transferable skills to move to another industry, or if it is not easy to move somewhere where jobs are available

Question 16

Frictional unemployment

Answer 16

Due to people moving between jobs (typically short term

Question 17

Seasonal unemployment

Answer 17

Some employment is ​strongly seasonal in demand​. Industries such tourism are only prominent during certain times of the year so only demand large numbers of workers at a specific time. Once that time of the year has passed then the labour force is drastically reduced.

Question 18

Cyclical unemployment (2)

Answer 18

• This is caused by a lack of demand for goods and services, and it usually occurs during periods of economic decline or recessions.
• Firms are either forced to close or make workers redundant, because their profits are falling due to decreased consumer spending, and they need to reduce their costs.

Question 19

Migration on unemployment: (4)

Answer 19

• An increase in net inward migration tends to lead to ​increased jobs​
• Since the 1990s, the UK has seen a large increase in immigration from mainly Eastern European countries. Most of these people come to the UK to work, are of working age and often take lower skilled jobs; they are less likely to claim benefits than the existing population
• It also leads to ​lower wages, particularly for lower-paid, low skilled jobs
• Increased competition

Question 20

Skills on unemployment: (2)

Answer 20

• Economies progress over time, and as a result, ​higher skills are needed to work in them (In the UK 50 years ago, many jobs were available for those who couldn’t read or write but now there are few.)
• If firms will not train staff, the government has to step in to correct the market failure but this is costly