2.1.3 Employment and Unemployment

Question 1

What does unemployment mean?

Answer 1

it consists of those of working age who are willing and able to work, actively seeking work but do not have a job.

Question 2

What does underemployment mean?

Answer 2

those who are in part-time or zero hour contracts when they would prefer to be in full-time employment or those who are self-employed but would rather be employees.

Question 3

What is the employment rate?

Answer 3

The percentage of the working-age population that is employed.

• It’s calculated by dividing the number of employed individuals by the total working-age population and multiplying by 100.

Question 4

What is the unemployment rate?

Answer 4

The percentage of the workforce that is unemployed but actively looking for work.

• It’s calculated by dividing the number of unemployed individuals by the total labor force and multiplying by 100.

Question 5

What is the inactivity rate?

Answer 5

The percentage of the working-age population not participating in the labor force, including those who are neither employed nor unemployed.

• It’s calculated by dividing the number of inactive individuals by the total working-age population and multiplying by 100.

Question 6

What is the claimant count? ( when measuring unemployment)

Answer 6

The number of people receiving benefits for being unemployed. It provides the number of claimants on a particular day each month and the numbers joining and leaving the account each month.

Question 7

What is the UK Labour Force Survey? ( when measuring unemployment)

Answer 7

It is a large survey by the Office for National Statistics that collects data on employment, unemployment, and economic inactivity in the UK. It provides insights into labor market trends.

Question 8

What are the 5 causes/types of unemployment?

Answer 8

1) Structural unemployment
2) Frictional unemployment
3) Seasonal unemployment
4) Cyclical unemployment
5) Real-wage inflexibility / unemployment

Question 9

What is Structural unemployment?

Answer 9

When there is a mismatch of skills and job opportunities as labour demand changes over time. Occupational immobility of labour is a major cause (i.e the inability to move in to a new occupation due to a lack of skills).

Question 10

What is frictional unemployment?

Answer 10

A short term unemployment between jobs. A dynamic economy that is flexible will always have some people in the process of moving between jobs.

Question 11

What is seasonal unemployment?

Answer 11

When there are regular seasonal changes in employment. Unemployment data is usually given a seasonal adjustment to reflect this.

Question 12

What is cyclical unemployment?

Answer 12

Unemployment caused by a recession is cyclical. It is demand-deficient unemployment caused by a fall in aggregate demand.
If actual output grows more slowly than potential output then cyclical unemployment is likely.

Question 13

What is real-wage unemployment?

Answer 13

Created when real wage rates are stuck at too high a level to reduce unemployment.

Possible causes of real wage unemployment:
- The impact of rises in the national minimum wage – some unemployed workers might have been prepared to work for less.
- Trade unions using their collective bargaining power to drive wages above their free market level
- Workers refusing paid work because they can get more in welfare benefits

Question 14

What are the effects of unemployment on consumers?

Answer 14

1) Decrease in living standards
2) Loss of confidence leading to lower consumer spending.
3) Danger of mental illness if unemployed for a long time.
4) May result in lower house prices and a fall in personal wealth.

Question 15

What are the effects of unemployment on firms?

Answer 15

1) Easier to recruit new employees
2) Less consumer spending so firms face falling sales, revenues & profits.
3) Since there is a surplus in labour in the economy, firms might be able to hold wages down and therefore their costs.

Question 16

What are the effects of unemployment on workers?

Answer 16

1) Loss of skills - workers may not have up-to-date training.
2) Loss of income - welfare benefits are rarely as generous as paid employment.
3) Lower living standard because they have less income so quality of life falls.
4) Long term unemployment may make it more difficult to get a job in the future.

Question 17

What are the effects of unemployment on the government and the society?

Answer 17

1) Increased spending on welfare benefits
2) Less revenue from income tax and indirect taxes.
3) Opportunity cost - the goods and services that could have been produced by the unemployed workers.
4) Inequality may increase, perhaps resulting in more crime and/or political unrest.