2.3 Unemployment Flashcards
What is the population of working age?
Those aged between 16 and 64
Who are the economically active (the labour force)?
Those of working age who are willing and able to work - includes employed and unemployed
What are the economically inactive
People of working age who are not able, and/or not willing to work
What is the labour force participation rate?
(labour force/population of working age) x 100
Who are the unemployed?
The part of the labour force without paid work, available for work and actively seeking employment at the going wage rate
What is the level of unemployment?
The number of unemployed
What is the unemployment rate?
(unemployed/labour force) x 100
What is the level of employment?
The number of people who are in paid work
What is the employment rate?
(number of employed workers/population of working age) x 100
Who are the underemployed?
Workers who are in paid work but experiencing a lack of enough paid work, or work that does not make full use of their skills and abilities
What is frictional unemployment?
Short term unemployment occurring when workers are out of work and between jobs
Which three types of unemployment can cause frictional unemployment?
Search unemployment, casual unemployment, seasonal unemployment
What is structural unemployment?
Unemployment caused by workers losing jobs due to the change in the structure of an economy because of changes in patterns of economic activity
Which three types of unemployment can cause structural unemployment?
Regional unemployment, technological unemployment, international unemployment
What is occupational mobility of labour?
Where workers are willing and able to move between different types of jobs and occupations
What is geographical mobility of labour?
Where workers are willing and able to travel further to work, and also to move between different areas and regions for work
What is cyclical unemployment?
Unemployment due to a lack of aggregate demand
What are the costs of unemployment?
- Fall in income and living standards
- Increasing income inequality between employed and unemployed
- Fall in consumer spending
- Fall in government revenue from taxation
- Increased government spending to support unemployed
- Possible “brain drain”
What benefits can unemployment create?
- Firms wishing to expand can draw from a larger pool of available workers
- Wage inflation likely to be reduced
- May be a reduction in pay related industrial action
- Can provide workers an opportunity to find the most suitable work
What is the natural rate of unemployment/NAIRU (Non accelerating inflation rate of unemployment)?
The level of employment at full employment
What causes demand deficient unemployment (Keynesian view)?
It is due to a lack of aggregate demand and persists due to markets not adjusting in the long run
What is the UK government’s main measure of unemployment?
The Labour Force Survey (LFS)
What are the advantages of the LFS?
A wide measure thought to be more accurate than the claimant count
The LFS is an internationally comparable measure
Other information about the nature of employment and unemployment is collected in the survey
What are the disadvantages of the LFS?
Samples may be unrepresentative and subject to response errors as well as low rate of response
Costly to administer
Takes time to compile and there may be “time lags” in data
What is the Labour Force Survey (LFS)?
Based on a quarterly survey of a sample of approximately 25000 UK housholds
What is the Claimant Count?
A measure of those claiming unemployment-related benefits - the Job Seekers Allowance (JSA) and Universal Credit (UC)
What are the advantages of the Claimant Count?
Easy to collect as it is a tally of those receiving the JSA and out of work UC claimants
Relatively costless to obtain
An accurate measure of those claiming unemployment related benefits
What are the disadvantages of the Claimant Count?
Heavily influenced by eligibility rules
There may be fraudulent benefits claims
Not internationally comparable
Why does unemployment tend to be underestimated?
Measures of unemployment do not include part time workers or those in jobs below their skill level - fails to reflect underemployment
Some individuals are not classified as unemployed, having moved from unemployment to inactivity
What does the significance of the consequences of unemployment depend on?
The rate of unemployment
The duration of unemployment
The cause of unemployment - structural more harmful than frictional as structural causes are likely to persist and may lead to a loss of skills and reduction in the productive capacity of the economy
The distribution of unemployment
The geographical and occupational mobility of labour
The natural rate of unemployment
What are possible policies to reduce structural unemployment?
- Retraining of unemployed workers - occupational mobility of labour
- Government providing improved transport infrastructure - geographical mobility of labour
- Government can provide subsidies to employers in regions with high levels of unemployment
- Government provide incentives for new industry to relocate to areas with high levels of unemployment
What are possible policies to reduce frictional unemployment?
- Industries affected by seasonal fluctuations in demand can diversify their products to provide a greater range of goods and services to attract demand throughout the year
- Workers affected by seasonal/casual unemployment can train to compete for jobs in a wider range of sectors
- Reduce unemployment related benefits
- Improve information provision about job availability
What are possible policies for reducing cyclical unemployment?
Expansionary fiscal policy:
- increased government spending (G) will increase aggregate demand
- reduced taxation (T) leads to greater consumer expenditure and greater AD
- since labour is a “derived demand” this will lead to lower cyclical unemployment
Expansionary monetary policy:
- reducing the central bank rate, which will filter through to other market interest rates
- households and firms are likely to spend (C) and invest (I) more lead to increased AD
- this will lead to lower cyclical unemployment
What are the possible policies for reducing the natural rate of unemployment?
Supply side polices for reducing frictional and structural unemployment
