Employment and Unemployment

Question 1

Why is it difficult to accurately measure unemployment?

Answer 1

• People may falsely claim unemployment benefits
• Some unemployed people may not reveal this in a survey

Question 2

What are the 2 main measures of unemployment in the UK?

Answer 2

• The Claimant Court
• The International Labour Organisation (ILO) and the UK Labour Force Survey (LFS)

Question 3

How does the Claimant Court work?

Answer 3

It counts the number of people claiming unemployment benefits, e.g Job Seekers Allowance. They have to prove they are actively looking for work

Question 4

What are the issues with the claimant Court?

Answer 4

Not every unemployed person is eligible for JSA, or even bothers claiming it. Also, some employed people claim the benefit

Question 5

What is the the International Labour Organisation (ILO) and the UK Labour Force Survey (LFS)?

Answer 5

The ILO is taken on by the LFS, asking people directly if they:
- Have been out of work for 4 weeks
- Able and willing to start working within 2 weeks

Question 6

What are the issues with The International Labour Organisation (ILO) and the UK Labour Force Survey (LFS)?

Answer 6

Part time unemployed are less likely to claim unemployment benefits so it gives a much higher figure than the Claimant Court

Question 7

How do higher rates of unemployment affect consumers?

Answer 7

• If consumers are unemployed then they have less disposable income and their standard of living may fall
• There are psychological consequences of losing a job that can affect future employment

Question 8

How do higher rates of unemployment affect firms?

Answer 8

• Higher rates of unemployment means firms have a larger supply of labour and can therefore reduce wages
• However, more unemployment results in people having less disposable income and therefore consumer spending will fall

Question 9

How do higher rates of unemployment affect workers?

Answer 9

• Unemployment is a waste of available labour and will negatively affect economic growth
• It may cause workers to lose their existing skills if they are out of work for an extended time

Question 10

How do higher rates of unemployment affect the government?

Answer 10

• If the unemployment rate increases, the government may have to
  spend more on JSA, which incurs an opportunity cost because the
  money could have been invested elsewhere
• The government will also receive less revenue from income tax

Question 11

How do higher rates of unemployment affect society as a whole?

Answer 11

• There is an opportunity cost to society, since workers could have produced goods and services if they were employed
• There could be negative externalities in the form of crime and
  vandalism, if the unemployment rate increases

Question 12

Who are the economically inactive?

Answer 12

People who are not actively looking for work, for example the elderly, disabled or children

Question 13

What issue could arise if the number of the economically inactive increases?

Answer 13

The size of the labour force may decrease, meaning the productive potential of the economy could fall

Question 14

What are the 4 types of unemployment?

Answer 14

• Structural unemployment
• Frictional unemployment
• Seasonal unemployment
• Demand deficiency unemployment

Question 15

What is structural unemployment?

Answer 15

When there is a long term decline in the demand of goods and service in an industry, costing jobs. For example, the decline of the coal mining industries in the UK.

Question 16

What is the main issue with structural unemployment?

Answer 16

If workers do not have transferable skills they are likely to remain unemployed in the long run

Question 17

What is frictional unemployment?

Answer 17

The time between leaving a job and looking for another job. This is a constant occurrence and is not particularly damaging to the economy.

Question 18

Why is it extremely rare to get 100% employment?

Answer 18

Frictional unemployment as people will always be moving between jobs

Question 19

What is seasonal unemployment?

Answer 19

Rates of employment will change throughout the year. For example, more people are employed in tourism during the summer as demand rises

Question 20

What is demand deficiency unemployment?

Answer 20

When there is a lack of demand for goods and services, usually during periods of economic decline or recession. Firms are forced to close or make workers redundant in order to cut their costs, causing output to fall

Question 21

What is the alternative cause of demand deficiency unemployment?

Answer 21

Increases of productivity mean workers can produce a higher output, meaning less workers are needed to produce the same quantity of goods and services

Question 22

How can globalisation affect employment?

Answer 22

Globalisation can be a major factor in structural employment as manufacturing sectors move abroad to lower cost areas

Question 23

How does migration affect employment?

Answer 23

Migrants are typically of working age and bring high quality skills to the domestic workforce. This can increase productivity and the skill of the labour force, increasing global competitiveness

Question 24

What is the natural rate of unemployment?

Answer 24

When the labour market is at equilibrium. It is the 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

Question 25

What is the cause of the natural rate of unemployment?

Answer 25

Supply side factors

Question 26

What does the natural rate of unemployment include?

Answer 26

The frictional level of unemployment, structural unemployment and workers who do not have the necessary skills for a job

Question 27

What is an alternative name for the natural rate of unemployment?

Answer 27

The NAIRU: non-accelerating inflation rate of unemployment

Question 28

What happens to the unemployment rate long term?

Answer 28

It reverts to the natural rate of unemployment. However, it can fluctuate around this rate due to economic variables