2.1.3 Employment and unemployment Flashcards
2.1 Measures of economic performance
What does it mean if someone is unemployed?
Someone who is not in work but has looked for work in the last FOUR WEEKS and is READY TO START working in the next TWO WEEKS (including people who are waiting to start a job in the next two weeks)
What does it mean if someone is economically inactive?
They are not in work, don’t want to be in work and have stopped actively searching for work
Why might someone be economically inactive?
- education (student)
- retirement
- looking after someone (e.g. child/relative)
Define voluntary unemployment
A situation where the unemployed choose not to accept a job at the going wage rate
Why might someone choose to be voluntarily unemployed?
- generous unemployment benefits
- high marginal tax rates (may be worse off if they have a job)
- hoping to find a job more suited to their skills/qualifications
- some jobs may be too demeaning/tedious
Define involuntary unemployment
A situation where workers are willing to work at the market wage (or just below) but are prevented from doing so by factors beyond their control
Why might someone be involuntarily unemployed?
- deficiency of AD (lack of derived demand for labour)
- labour market inflexibilities
- efficiency wage theory: the market does not clear as the wage rate is above the equilibrium, which causes excess supply of labour (not enough job spaces available)
Define the ‘unemployment rate’
The number of unemployed people as a percentage of all ‘economically active’ people
How does the Claimant Count measure unemployment?
Measures the number of people claiming benefits because they are out of work:
- includes people who are on: Jobseeker’s Allowance and those claiming Universal Credit
How is unemployment measured using the Labour Force Survey?
The survey asks people if they are:
- currently out of a job
- actively seeking work
- ready to immediately start work
Limitations of the Claimant Count and Labour Force Survey as a means of measuring unemployment
The figures may be underestimated/inaccurate as:
- the LFS only takes a sample from the entire population (may be unrepresentative)
- CC excludes those who are looking for work but are not eligible to claim benefits
- those who are underemployed are not included
- those who are in ‘hidden unemployment’ are not included
- measures of unemployment exclude the economically inactive
Who are the hidden unemployed?
Those who are:
- working part time but would like to work full time
- on govt. training schemes who would prefer employment or classed as sick/disabled
- who aren’t actively looking for jobs but would take a job if offered
- who are in education because they can’t get a job
What does it mean if someone is underemployed?
- Someone who is in a part-time or zero hour contract when they would prefer to be full time (unstable/low-paid)
- Someone who is self-employed but would rather be employed
- Someone who is in a job that does not reflect their skill level (few opportunities/undervalued)
Consequences of underemployment
- less incomes earned: less tax rev.
- wasted resources (working below YFe/overqualification/unproductive economy)
- can affect career prospects (reduces the chance of securing a better role)
- can lead to stress/overworking (working multiple jobs to compensate for unstable contracts)
- lack of motivation: poorer quality production and less efficiency
What does it mean if someone is over-employed?
- Someone who wants to work less hours but with the same pay
- Someone who wants to work less hours and will accept less pay
How does an increase in ec. inactivity affect the economy?
Decreases the size of the labour force:
- causes a fall in productive potential
- lower GDP
- lower tax rev.
OR
- could result in more people being unemployed if there are no jobs available to them
What is seasonal unemployment?
Unemployment caused by changes in demand for workers during seasonal changes (e.g. farming/tourism)
What is frictional unemployment?
Unemployment that occurs as people move between jobs (in-between jobs or seeking better jobs)
What is structural unemployment?
Unemployment that occurs when there are significant changes in the pattern of unemployment in the economy (the labor market is unable to provide jobs due to a mismatch between the skills/qualifications of job seekers and the available job opportunities)
Causes of structural unemployment
- changes in technology
- changes in structure of the economy
- changes in demand for certain skills/occupations (skill gaps)
- employer discrimination
- disincentive effects: child care costs/commuting/tax and welfare
What is cyclical (demand-deficient/Keynesian) unemployment?
Unemployment caused by a shortage of demand in the economy, leading to a reduction in production and then a reduction in employment (derived demand) - directly linked to the business cycle
How does the wage rate affect the demand for labour?
- if the wage rate is high, the demand for labour is lower
- if the wage rate is lower, the demand for labour is high (can take on more workers/cheaper than capital)
What causes the demand for labour to shift outwards?
- a rise in the level of consumer demand (derived demand: the business needs to take on more workers)
- an inc. in the productivity of labour (more cost efficient than capital)
- a govt. employment subsidy (allows businesses to employ more workers)
What causes the demand for labour to shift inwards?
- if the economy falls into recession (decreased derived demand)
