2.1.3: Empoyment & Unemployment

Question 1

What is unemployment?

Answer 1

People who are able, available and willing to work at the going wage, but can’t find a job (despite an active search for work).

Question 2

What are the two measures of unemployment?

Answer 2

-Claimant Count (CC).
-Labour Force Survey (LFS).

Question 3

What is the Claimant Count?

Answer 3

The number of people claiming Job Seekers Allowance (JSA).

Question 4

What is the Labour Force Survey?

Answer 4

A sample of 60,000 households, where anyone of working age can be classed as employed, unemployed or inactive.

Question 5

What is economic inactivity?

Answer 5

People of working age not seeking employment AS WELL AS those who are unable to start work (e.g. those in study, looking after family, health related issues).

Question 6

How does the Claimant Count (CC) and Labour Force Survey (LFS) compare?

Answer 6

Some people may be included in the CC but not in the LFS:
-People working in the ​hidden economy.
-People who claim benefits fraudulently.
The LFS is a sample, and the CC doesn’t consider factors in the labour market (e.g. students looking for work).

Question 7

What is economic activity?

Answer 7

People who are employed and unemployed, who are engaged with the labour market.

Question 8

What is activity/participation rate?

Answer 8

Employed Or Unemployed/Working Age Population X 100

Question 9

What is employment rate?

Answer 9

Employed/Population Of Working Age X 100

Question 10

What is the unemployment rate?

Answer 10

Unemployed/Population Of Working Age X 100

Question 11

What is under-employment?

Answer 11

People who can’t find a job suitable for their qualifications & experience and/or can’t find enough hours to work.

Question 12

What are examples of the under-employed?

Answer 12

-Part-time/zero hour contract.
-Over-qualified (e.g. university graduate working as a bartender).

Question 13

What is the significance of changes in activity (employment)?

Answer 13

-Maximises productive potential.
-Raises living standards.
-Higher GDP and tax revenues.

Question 14

What is the significance of changes in activity (unemployment)?

Answer 14

-Fall in the country’s productive potential.
-Lower GDP and tax revenues.

Question 15

What is the significance of changes in activity (inactive)?

Answer 15

-Decreases the size of the labour force.
-More jobs are available.

Question 16

What is frictional unemployment?

Answer 16

Transitional unemployment, due to people moving between jobs.

Question 17

What is structural unemployment?

Answer 17

A reduction in employment due to a long term decline in demand in an industry.

Question 18

What is seasonal unemployment?

Answer 18

When people are unemployed at certain times of the year, as they work in industries that aren’t in demand all year round.

Question 19

What is real wage inflexibility?

Answer 19

This is unemployment considered to be the result of ​real wages being above equilibrium, leading to an excess supply of labour.

-Some workers might be prepared to work for less than the minimum wage.
-Companies may be prepared to take on more workers if they could pay them less than the minimum wage.
However, this is illegal and so unemployed workers can’t get a job.

Question 20

What is real wage unemployment?

Answer 20

When wages are set above the equilibrium level, causing the supply of labour to be greater than demand.

Question 21

Show real wage unemployment in a diagram:

Answer 21

Question 22

What is real wage flexibility also known as?

Answer 22

Classical Unemployment/Classical View.

Question 23

What is cyclical unemployment?

Answer 23

Unemployment due to a general lack of demand of goods and services.
The impact of economic recession on the unemployment rate.

Question 24

What is cyclical unemployment also known as?

Answer 24

Keynesian View/Demand Deficient.

Question 25

How does migration impact unemployment?

Answer 25

-Increased jobs​. Due to the ​circular flow of income, immigrants’ spending creates jobs and total employment increases without an increase in unemployment.
-Lower wages. This is especially for lower-paid, low skilled jobs.
-More competition for jobs. Low-skilled UK workers with low motivation are most affected, as they are competing in the job market with hard-working, high-skilled workers.

Question 26

How does skills affect unemployment?

Answer 26

Low-skilled people become ​long-term unemployed as their skills don’t fit the jobs on offer.

e.g. engineering companies struggles to recruit skilled workers even though there are unemployed workers in the local area.

Migrant workers may fill these shortages​ if their skills fit.

Question 27

What is the impact of unemployment on workers?

Answer 27

-Loss of income and a fall in living standards.
-Long-term unemployed find it harder to get a new job.
-Feeling degraded by signing on to benefits.

Question 28

What is the impact of unemployment on firms?

Answer 28

-Decrease in demand for their goods/services.
-Firms have a smaller pool of skilled workers to employ (due to long-term unemployment).
-They can offer lower wages.

Question 29

What is the impact of unemployment on consumers?

Answer 29

-Less choice, as there is less of a range of shops and products.
-Unemployed consumers have less to spend.
-The benefit of firms putting sales on to increase demand for products.

Question 30

What is the impact of unemployment on the government?

Answer 30

-Fall in tax revenue.
-Higher spending on welfare payments (incurring an opportunity cost).
-Increase in budget deficit, meaning taxes have to be raised, and subsidies have to be delayed.

Question 31

What is the impact of unemployment on society?

Answer 31

-Social deprivation, which has a relationship with crime.
-Areas see a fall in demand for goods/services, leading to a fall of income and further loss of jobs.
-Loss of potential national output, and an insufficient use of scarce resources.