4.2.3.2 employment and unemployment

Question 1

define employment

Answer 1

being in paid work - full or part time

Question 2

define unemployment

Answer 2

those of working age who are willing, able and available to work but don’t have a job

Question 3

define economically active

Answer 3

people of working age who are in employment or are unemployed
ie) pretty much everyone of working age!

Question 4

define economically inactive

Answer 4

people of working age who aren’t seeking work
ie) full time students, those who have taken early retirement, people too ill to work, people staying at home to look after family

Question 5

define full employment

Answer 5

where all those who are, economically active and are willing and able to work, can find employment

Question 6

define involuntary unemployment

Answer 6

workers are willing to work at current market wage rates but there are no jobs available

Question 7

define voluntary unemployment

Answer 7

workers choose to remain unemployed and refuse job offered at current market rates

Question 8

what is the:
level of unemployment
rate of unemployment - how do you calculate this?

Answer 8

• level of unemployment = the number of people who are unemployed
• rate of unemployment = the number of people unemployed as a % of the labour force
• unemployed x 100 / labour force

Question 9

what are the two main measures of unemployment in the UK?

Answer 9

• the claimant count
• the international labour organisation

Question 10

what is the claimant count?

Answer 10

1) the claimant count
- the number of ppl receiving welfare benefits for unemployment
- the usual benefit received is jobseeker’s allowance (JSA)
- or universal credit (the ‘Alternative Claimant Count’ where ppl are claiming the job seeker bit of universal credit

Question 11

what is the labour force survey?

Answer 11

• quarterly survey of approx 60,000 households compiled by the ONS
• asks ppl if they meet the following criteria:
  -> been out of work for 4 weeks
  -> able and willing to start working within 2 weeks
  -> workers should be available for 1hr per week, part time unemployment is included
• this info is used to produce an estimate of the national unemployment level

Question 12

what is the relationship between LFS and the claimant count?

Answer 12

• the LFS is normally higher than the claimant count measure
  -> since part time unemployed are less likely to claim unemployment benefit
• it includes those receiving benefits as well as those who don’t qualify for / choose not to claim benefits

Question 13

what are two problems with the claimant count?

Answer 13

1) underestimates unemployment statistics
- not everyone who’s eligible signs on
- temporarily unemployed tend not to claim
- under 18s and over 60s don’t count

2) overestimate unemployment statistics
- some people who claim JSA/UC aren’t actively seeking work
- some have jobs in black economy but continue to claim benefits

Question 14

what are 5 pros of the LFS?

Answer 14

1) internationally recognised
2) potential for analysis across countries
3) picks up trends in sectors
4) better guide for policy makers
5) generally accepted to be more accurate

Question 15

what are 2 cons of the LFS?

Answer 15

1) costly to compile
2) subject to sampling and extrapolation errors

Question 16

what is underemployment?

Answer 16

can’t find a job suitable for qualifications and experience or cannot find enough hours to work
- has become increasingly common due to graduates being unable to find skilled work and increased use of zero hours contracts

Question 17

what is hidden unemployment?

Answer 17

similar to underemployment
- workers lose their jobs and don’t actively seek a new job as the costs of seeking aren’t worth it
- (they’ll only take a job if it costs them little to find it)
OR
- when ppl choose to stay in education rather than seek employment

Question 18

when can there be situations where you get increasing employment and unemployment at the same time?

Answer 18

• increases in the size of the population
• a fall in the inactivity rate

Question 19

what is structural unemployment? (supply side)

Answer 19

• occurs with a long term decline in demand for the goods and services in an industry
  -> this costs jobs
• especially true for jobs in industries like car manufacturing where labour is replaced by capital (also called technological unemployment)
• the decease of the coal and ship building industries in the UK led to a great deal of structural unemployment
• worsened by the geographical and occupational immobility of labour

Question 20

what is geographical immobility of labour?

Answer 20

if its not easy to move somewhere where jobs are available

Question 21

what is occupational immobility of labour?

Answer 21

if workers don’t have transferable skills to move to another industry

Question 22

what is cyclical unemployment? (demand deficiency)

Answer 22

• caused by a lack of demand for goods and services
• usually occurs during periods of economic decline / recessions
• occurs when there’s a negtaive output gap
• firms are other forced to close / make workers redundant
  -> because their profits are declining due to decreased C
  -> so they need to decrease their costs
  -> causes output to fall in several industries
  -> firms don’t need to employ as many workers
  -> don’t need to produce as many goods (D falling)
• could be caused by increases in productivity
  -> each worker can produce higher output so fewer are needed to produce the same quantity of good + services
• linked to the economic cycle
  -> workers are in derived demand

Question 23

what is frictional unemployment? (supply side)

Answer 23

• the time between leaving a job and looking for another job
• is common for there to always be some frictional unemployment and it’s not particularly damaging as it’s only temporary
• hence why it’s rare to get 100% employment: there will always be people moving between jobs

Question 24

what is seasonal unemployment? (demand side)

Answer 24

• occurs during certain points in the year
  -> usually around summer and winter
• during the summer, more ppl will be employed in the tourist industry, when demand increases

Question 25

how is demand-side unemployment shown on a graph?

Answer 25

Question 26

what is real wage unemployment?
and what do classical economists argue about this?

Answer 26

• wages above the market equilibrium may cause unemployment
• this is due to the supply of labour exceeding demand
• classical economists argue that by letting wages fall to the equilibrium level, there would be no unemployment
• in a free labour market real wage rates would fall in these circumstances and the market would return to equilibrium
• but distortions to the labour market like national minimum wage and trade union power can maintain real wage rates above equilibrium

Question 27

what is the natural rate of unemployment?

Answer 27

• the rate at which labour markets are in equilibrium
  ie) labour markets all clear
• difference between those who are willing to have a job at the current market wage level and those who are willing and able to have a job
  -> it’s caused by supply-side factors
• in the long run the unemployment rate reverts to the natural rate of unemployment
• it can fluctuate around this due to economic variables
  ie) will be some residual levels of frictional and structural unemployment at the equilibrium

Question 28

the natural rate of unemployment is also called the NAIRU
what does this mean?

Answer 28

non-accelerating inflation rate of unemployment

• means that inflation doesn’t have a tendency to increase at this unemployment rate
• sometimes also referred to as the full level of employment
  -> since there’s no demand-deficient unemployment

Question 29

what is the impact of unemployment?

Answer 29

• reduced demand for goods/services
  -> negative multiplier effect
• lower living standards
• social costs
  -> health, crime, psychological consequences of losing jobs
• de-skilling of human capital
  -> reduced chances of finding work
• reduced investment in the economy
• reduced tax revenue
• increased welfare spending

Question 30

what are three benefits of unemployment?

Answer 30

1) inflation
2) pool of labour available for growing businesses
3) rise in self-employed