CH35 Employment and unemployment

Question 1

what does it mean when someone is self-employed?

Answer 1

it means that they are working for themselves and not as part of a company structure.

Question 2

what is meant by active population?

Answer 2

those in work or actively seeking work: also known as the labour force

Question 3

what is meant by activity rate or participation rate?

Answer 3

the number of those in work or unemployed divided by the population of working age expressed as a percentage

Question 4

what is meant by cyclical or demand-deficient unemployment?

Answer 4

when there is insufficient demand in the economy for all workers who wish to work at current wage rates to obtain a job

Question 5

what is meant by employed?

Answer 5

the number of people in paid work

Question 6

what is meant by employees?

Answer 6

workers employed by another individual or firm

Question 7

what is meant by employment?

Answer 7

those paid in work

Question 8

what is meant by the employment rate?

Answer 8

the number of those in work divided by the population of working age expressed as a percentage

Question 9

who does underemployment also cover?

Answer 9

it also covers those who are in jobs which do not reflect their skill level.
-for example, a university graduate who, unable to find a graduate job, works as a bartender would be considered underemployed

Question 10

what do those in employment and unemployment form?

Answer 10

they form part of the labour force

Question 11

who are the unemployed?

Answer 11

those who are not in work but are actively seeking work

Question 12

how is unemployment in the UK measured?

Answer 12

it is measured either through a monthly survey of the population or by counting the number of people claiming benefits and able to work

Question 13

what is meant by long-term unemployed?

Answer 13

it is defined in the UK as being those out of work for more than 12 moths

Question 14

what is meant by the hidden unemployed?

Answer 14

party those in the population who would take a job if offered, but are not in work and are not currently seeking work; partly those who are underemployed

Question 15

what are the 4 important ratios, expressed as percentages, which are frequently quoted by economists and govs?

Answer 15

-the employment rate: the number of those in work divided by the population of working age
-the unemployment rate: the number of those not in work but seeking work divided by the labour force
-the activity or participation rate: the number of those in work or unemployed divided by the population of working age
-the inactivity rate: the number of those not in work and unemployed divided by the population of working age.

Question 16

what are the 5 different types of unemployment?

Answer 16

-frictional unemployment
-seasonal unemployment
-structural unemployment
-cyclical or demand-deficient unemployment
-real wage unemployment

Question 17

what is frictional unemployment?

Answer 17

it is when workers are unemployed for short lengths of time between jobs

Question 18

what is seasonal unemployment?

Answer 18

when workers are unemployed at certain times of the year, such as agricultural workers in winter

Question 19

what is structural unemployment?

Answer 19

when the pattern of demand and production changes leaving workers unemployed in labour markets where demand has shrunk.

Question 20

what is cyclical unemployment?

Answer 20

unemployment which occurs when the economy is not in a boom

Question 21

what is real wage unemployment?

Answer 21

when real wages are stuck at a level above that needed to reduce unemployment any further

Question 22

will there always be frictional unemployment in a free market?

Answer 22

yes, and economists do not regard it as a problem

Question 23

when does seasonal unemployment tend to rise and fall? is there much that can be done to prevent this pattern from occurring in a market economy?

Answer 23

it tends to rise in winter when some of these workers (construction workers or workers in the tourist industry) will be laid off, whilst unemployment falls in summer when they are taken on again.
-there is little that can be done to prevent this pattern occurring in a market economy where the demand for labour varies through the year.

Question 24

what are 3 examples of structural unemployment?

Answer 24

-one example of structural unemployment is regional unemployment. Throughout the post-war period, the South of England has tended to be at full employment while regions such as Northern Ireland have consistently suffered unemployment. This has occurred because of a lack of mobility of factors of production between the regions.
-another example is sectoral unemployment. The steel and shipbuilding industries in the UK declined sharply in the late 1970s and early 1980s leaving a considerable number of skilled workers unemployed. Unfortunately, their skills were no longer needed in the economy and without training and possible relocation, they were unable to adapt to the changing demand.
-another example is technological unemployment. Groups of workers across industries may be put out of work by new technology. Again, without training and geographical mobility, these workers may remain unemployed.

Question 25

what is one cause of real wage unemployment?

Answer 25

the minimum wage.
-unemployed workers might be prepared to work for less than the minimum wage. Employers might be prepared to take on more workers but only if they could pay workers less than the minimum wage. However, the fact that employers are legally not allowed to pay workers less than the minimum wage means that those unemployed workers cannot get a job.

Question 26

what is another cause of real wage unemployment? (hint: not to do with wages)

Answer 26

another cause of real wage unemployment is unemployed workers refusing to take low paid jobs because they can receive more in welfare benefits than working.

Question 27

what causes cyclical unemployment?

Answer 27

it is caused by a lack of demand in the economy

Question 28

what type of factors are frictional, seasonal, structural and real wage unemployment caused by?

Answer 28

they are caused by supply side factors

Question 29

what do supply-side causes of unemployment include?

Answer 29

they include frictional, structural and seasonal unemployment

Question 30

when governments commit to increasing employment rates and reducing inactivity rates, which 3 main groups tend to be targeted?

Answer 30

-Women tend to have lower activity rates than men in rich industrialised economies. This is mainly due to women still being far more likely than men to give up their jobs to look after their children. Bringing more women into the labour force increases recorded GDP and so increases growth rates. It also increases tax revenues. It can also reduce welfare benefits where women are living in low income households. However, staying at home and looking after children in itself is a benefit to society even if it is not recorded in GDP
-Older workers, particularly over the age of 60, have lower activity rates. Many have retired even before they reach the state retirement age. Govs in Europe have been raising the retirement age in order to reduce the amount of gov spending on pensions. At the same time, they have been encouraging workers to stay in work or get a new job rather than retire
-Many govs in the past, including the UK government, have reduced politically sensitive unemployment rates by reclassifying some of the long-term unemployed as being unable to work due to disability. The result has been a significant increase in the amount spent on welfare benefits and lost output for the economy.

Question 31

since the late 1990s, what has the UK seen large increases in?

Answer 31

the UK has seen a large increase in immigration, partly from countries in Eastern Europe

Question 32

what do studies show about immigrants to the UK?

Answer 32

studies show that immigrants to the UK are more likey to be employed and less likely to claim benefits than the existing population.
-this is not surprising since the majority of immigrants come to the UK to work and are of working age. They tend to take jobs which are below these workers’ skill levels and so represent goof value for UK employers
-due to the circular flow of income, the spending of these workers creates further jobs in the UK. Total UK employment increases without an increase in unemployment.

Question 33

however, what is something that is negative which can be argued about immigration?

Answer 33

-it can be argued that net inward migration depresses wage rates, in particular low wages. The ability of UK firms to recruit foreign workers means that the supply of labour is increased, reducing the equilibrium price of labour, the wage rate.
-it can also be argued that UK workers with few skills are most affected by inward migration. This is because they are competing in the job market with migrants who are well motivated, have work skills and are prepared to work for low wages. UK workers who have low motivation to work, few skills and prefer to receive welfare benefits rather than work for the minimum wage can find themselves at a disadvantage when there is a plentiful supply of immigrant workers. (Evaluation: however, even if there is not immigration there will always be someone who is better motivated and has more skills. So these less motivate and less skilled people shouldn’t be blaming immigration but rather should try and focus on improving themselves so that they have more chances of being employed)

Question 34

what are the costs of unemployment to the unemployed and their dependants?

Answer 34

-there is a loss of income that could have been earned had the person been in a job. Offset against this is the value of any benefits that the worker might receive and any value placed on the extra leisure time which an unemployed person has at his or her disposal.
-evidence suggests that unemployed people and their families suffer in a number of other ways. One simple but very important problem for them is the stigma of being unemployed. Unemployment is often equated with failure both by the unemployed themselves and by society in general. Many feel degraded by the whole process of signing on, receiving benefits and not being able to support themselves or their families.
-Studies suggest that the unemployed suffer from high levels of stress, marital breakdown, suicide, physical illness and mental instability, and that they have higher death rates compared with those in employment.

Question 35

for the short-term unemployed, are the costs relatively low?

Answer 35

yes.
-many will lose some earnings, although a few who receive large redundancy payments may benefit financially from having lost their job. The social and psychological costs are likely to be limited too

Question 36

what is one more cost which long term unemployed suffer?

Answer 36

-evidence suggests that the longer period out of work, the less likely it is that the unemployed person will find a job.
-there are two reasons for this: first, being out of work reduces the human capital of workers. They lose work skills and are not being trained in the latest developments in their occupation. Second, employers use length of time out of work as a crude way of sifting through applicants for a job. For an employer, unemployment is likely to mean that the applicant is, to some extent, deskilled.
-there is a fear that the unemployed worker will not be capable of doing the job after a spell of unemployment. It could show that the worker has personality problems and might be a disruptive employee. It could also be an indication that other employers have turned down the applicant for previous jobs and hence it would be rational to save time and not consider the applicant for this job

Question 37

what are the costs of unemployment to local communities?

Answer 37

-costs of unemployment to local communities are more difficult to establish.
-some have suggested that unemployment, particularly amongst the young, leads to increased crime, violence on the streets and vandalism.
-areas of high unemployment tend to become run down. Shops go out of business. Households have no spare money to look after their properties and their gardens. Increased vandalism further destroys the environment

Question 38

what are the costs of unemployment to the government?

Answer 38

-the gov has to pay out increased benefits.
-on the other hand, the gov loses revenue because these workers would have paid taxes if they had been employed. For instance, they would have paid income tax and national insurance contributions on their earnings. They would have also paid more in VAT and excise duties because they would have been able to spend more.
-govs also provide help to the unemployed to get a job. They might provide information about available jobs, such as through Job Centres in the UK. They may provide training schemes or subsidise employers who take on unemployed workers.

Question 39

what are the costs of unemployment to the economy as a whole?

Answer 39

-taxpayers paying money to the unemployed is not a loss for the economy as a whole. It is a transfer payment which redistributes existing resources within the economy.
-the actual loss to the whole economy is two-fold. First, there is the loss of output which those workers now unemployed could have produced had they been in work. The economy could have produced more goods and services which would then have been available for consumption. Second, there are the social costs such as increased violence and depression which are borne by the unemployed and the communities in which they live.

Question 40

what are the costs of unemployment to consumers?

Answer 40

-the unemployed as consumers lose out because they are able to spend less. Consumers in areas of high unemployment also lose out because local shopping centres tend to be run down and dont offer the range of shops available to those in areas of low unemployment

Question 41

what are the costs of unemployment to firms?

Answer 41

firms suffer because unemployment represents a loss of demand in the economy. If there were full employment, the economy would be more buoyant and there would be more spending. Long term unemployment also reduces the pool of skilled workers that a firm could hire.