2.1.3 Employment And Unemployment Flashcards
Unemployment
people of working age who are out of work and actively seeking work in the labour market. They must be available to start work within the next two weeks
Unemployment rate
the proportion of the economically active population who are without a job (independent of a country’s size)
Measures of unemployment
- the Claimant count
- the International Labour Organisation ILO - the UK Labour Force Survey
The Claimant count
- the total no. recipients of Job Seeker’s Allowance added to
- those looking for work to claim Universal credit
The UK Labour Force Survey
asks 60-70,000 UK households to self-classify their economic status (employed, unemployed or economically inactive)
Issues with data for unemployment
- LFS intends to be representative for the whole population but there’s always scope for sample error
- excludes the economically inactive (maybe complex reason for no work)
- unemployment is not the same as underemployment
- there’s hidden unemployment
Difference between unemployment and underemployment
underemployment is people who are employed/working part-time/ but would prefer a full time job
Why does the no. people who work in the UK increase at the same time as unemployment?
- employment
- Increase immigration (e.g so there are more people in the labour market, some of whom get jobs and some who do not or replace others already working)
- also the no. people who are inactive is falling
Full employment
when there’s enough job vacancies for all the unemployed to take work (there’ll always be some unemployment in the economy)
Mass unemployment
when officially one person in ten in the labour force is counted as being out of work (e.g The Great Depression- unemployment increased by 24.6%)
Economic inactivity
those who are of working age but are neither in work or are actively seeking it (e.g pandemic might increase economic activity as the rate of long term unemployment grows)
Reasons for economic activity
- Student remaining in full-time education/on training courses
- Looking after family or home
- Long-term sickness
- Retired people (early retired)
- DIscourage workers who have given up an active search for work
Evaluation: long-term or not
Long-term unemployment
- People who have been out of work for at least one year (this is a structural supply-side problem in the labour market)
- the longer someone is without a job, the harder it is for them to find paid employment
Under-employment
when workers are willing to supply more hours of work than their employees are prepared to offer
Hidden unemployment:
people who do not have work but who are not counted in government reports (e.g those who have stopped looking for jobs, disability benefits, care for elderly)
Seasonal unemployment
people without paid jobs due to the time of year when there are seasonal changes in demand, production & employment (e.g farming, tourism, retailing, hospitality)
Frictional unemployment
- Workers seeking a better job or who are between jobs
- It affects people who are on short-term employment contracts (e.g school leavers, people looking for a career change, early retired coming back to labour market, mothers returning)
Zero-hour contracts
They do not guarantee a minimum no. of working hours each week (more likely to be young, part-time, women)
Structural unemployment
Unemployment caused by lack of suitable skills for jobs available; a result of de-industrialisation or other structural changes in an an economy
Causes of structural unemployment
- because of disincentive effects including the unemployment trap
- can happen because of other barriers to people finding work
Barriers to work
- unaffordable housing
- the high cost of childcare expensive transport services
- new jobs often require new skills (cost of re-training)
- employer discrimination against some groups
Demand deficient/ cyclical unemployment
involuntary unemployment due to lack of AD of g/s (also known as Keynesian unemployment)
What causes demand deficient/ cyclical unemployment?
due to a lack of demand for g/s
- in a recession, firms labour shed and real national output contracts = increase in spare productive capacity. Firms then cut their workforce & cyclical unemployment rises
How does labour shedding cause cyclical unemployment?
recession = labour shedding = real national output contracts = increase spare productive capacity = firms cut workforce = cyclical
Labour shedding
when firms reduce employment to cut their costs
Main economic costs of a high & rising level of unemployment
- Loss of current & future income
- Changing pattern of jobs in the economy
- slower long-run trend rate of economic growth
- risks of a period of price deflation
- erosion of people’s skills (loss of human capital)
- fiscal (budget) costs to govt
Costs of unemployment (loss of work experience)
- reduced employability from depreciation of skill
- gaps in CV may neg influence potential employers
- decline in quality of human capital as skills decline
Costs of unemployment (loss of current & future income)
- vulnerability to consumer debt often at very high interest rates
- decline in physical health & increase in psychological stress making it less likely for someone to find work again
Costs of unemployment (changing pattern of jobs in the economy)
- new jobs in the recovery stage are different from lost one
- structural unemployment which makes it harder to get long-term unemployed people back into new jobs
Economic scarring
the medium long term damage done to one or more economies following a severe economic shock which then leads to a recession
Risks of economic scarring from COVID
- Fall in business investment = an ageing of the existing capital stock
- Rise in long-term unemployment & economic inactivity in the labour market
- Increase in business failures including many previously commercially viable business
- Shrinkage in the capacity of the financial system to lend
How does real wage inflexibility/classical unemployment (min wage) cause unemployment?
- Real wages don’t move downwards easily so often people might be prepared to work for less but wages don’t go down to that level
- If wage rates are high, demand will be low & more ppl will want to work so supply/ labour will increase
How might migration impact employment and unemployment?
Increase immigration = more people in the labour market (some of whom get job and some who do not or replace others already working) = more employment
How might skills shortages impact employment and unemployment?
- reduced employability from depreciation of skill
- gaps in CV may neg influence potential employers
- decline in quality of human capital as skills decline
How could unemployment impact consumers?
lower living standards for consumers
How would unemployment impacts firms?
falling sales revenues and profits for firms
How would unemployment impacts workers?
opportunity cost (the g/s which could have been produced by the unemployed)
How would unemployment impacts government and society?
lower tax revenues for the government
- higher expenditure on benefits
Main social costs of a high & rising level of unemployment
- Loss of work experience
- rising income inequality
- externalities form deeper social problems
Main social costs of a high & rising level of unemployment (loss of work experience)
- decreased employability from depreciation of skills
- decrease in quality on human capital
Main economic costs of a high & rising level of unemployment (loss of current & future income)
- vulnerable to consumer debt due to high interest rates
- decrease in physical and mental health = less likely to join
Main economic costs of a high & rising level of unemployment (changing pattern of jobs)
- due to migration
- structural unemployment
- new industries
- occupational immobility- harder for people to get into new jobs
Main economic costs of a high & rising level of unemployment (slower long-run trend)
- decreased output
- economy inside PPF
- decreased efficiency
Main economic costs of a high & rising level of unemployment (fiscal costs)
- govt need to pay more
- decreased tax revenue (direct) = budget deficit
Main social costs of a high & rising level of unemployment (rising income inequality)
- increased relative poverty
- increased demand on NHS
Costs of unemployment evaluation
Depends on the reasons for unemployment e.g lack of skill
Would cutting wages solve real wage unemployment? (Keynesian view)
- Keynesian economists stress the need for govt to boost AD
- in a recession, cutting wages = a fall in spending since ppl have less income = reduce aggregate demand = lower economic growth. = less demand for labour
Would cutting wages solve real wage unemployment? (Classical view)
- they make the assumption that labour markets are perfectly competitive
- however, in the real world, there are many labour market imperfections e.g monopsonistic labour markets
- so cutting wages may not boost demand for labour
What are two effects of a rising unemployment?
- loss of skill & productivity (creates insecurity in the workforce = lower morale/motivation= low prod.)
- lower consumer spending (lower demand for income elastic products)
How might unemployment actually help confidence?
Additionally, there is lower staff turnover since employees are less likely to be able find other jobs or want to move in an uncertain economic climate.
- Therefore the firm might be more secure.
How might unemployment have no effect on demand for goods?
- demand for inferior goods
