employment and unemployment Flashcards
how is someone considered unemployed ?
Someone is considered to be unemployed if they are not working but actively seeking work
They are part of the labour force
what does the labour consist of ?
The labour force consists of all workers actively working and the unemployed (who are seeking work)
Usually between the ages of 16-65
what does the non labour include ?
The non labour force includes all those not seeking work e.g. stay at home parents, pensioners, school children
who are the economically inactive ?
Economically inactive are those people who are between 16-65 and not working or not seeking work
how is unemployment measured ?
Unemployment in the UK is measured using two different approaches:
The International Labour Organisation (ILO) Survey
The Claimant Count
what is the ILO and UK labour force survey
An extensive survey is sent to a random sample of approximately 60,000 UK households every quarter
Respondents self-determine if they are unemployed based on the ILO criteria
Ready to work within the next two weeks
Have actively looked for work in the past month
The same survey is used globally so it’s useful for making international comparisons
what is the claimant count ?
Counts the number of people claiming job seekers allowance (JSA) in the UK
There is a more stringent requirement to be considered unemployed than with the ILO survey
Requires claimants to meet regularly with a ‘work coach’
when does involuntary unemployment?
Involuntary unemployment occurs when workers are willing to work at the current market wage rates but there are no jobs available
This type of unemployment is often associated with economic downturns, recessions, or structural shifts in industries.
when does voluntary unemployment ?
Voluntary unemployment occurs when workers choose to remain unemployed and reduce job offers at current market wages
Eg. Waiting for a better job opportunity or taking a break to travel
what is seasonal unemployment ?
Seasonal unemployment occurs as certain seasons come to an end and labour is not required until the next season
E.g. Fruit pickers; summer seaside resort workers; ski instructors
what is frictional unemployment?
Frictional unemployment occurs when workers are between jobs
This is usually short-term unemployment
Workers have voluntarily left their previous job to search for another
what is structural unemployment?
Structural unemployment occurs when there is a mismatch between jobs and skills in the economy
It usually happens as the structure of an economy changes, e.g. the secondary sector is declining and the tertiary sector is growing
There is no longer a need for a specific type of worker, e.g. ship builders in Glasgow
Many Western industries have relocated production to China, causing structural unemployment in their economies
Unless workers receive help to retrain, they are often left unemployed or under-employed
what is cyclical unemployment?
Cyclical or demand deficient unemployment is caused by a fall in AD in an economy
This typically happens during a slow down or recession
The demand for labour is a derived demand. It stems from the demand for goods/services
As output falls in the economy, firms lay off workers
how is demand side unemployment caused
Demand-side unemployment is caused by a lack of aggregate demand in the economy and this is often related to a recession in the economic cycle
How frictional and structural unemployment emerge ?
Frictional and structural unemployment emerge from factors affecting the supply side of the economy
how does governments implement appropriate gov intervention for unemployment?
The appropriate government interventions to alleviate different types of unemployment depend on whether they stem from demand-side or supply-side factors
how would the government respond to structural unemployment?- supply side
Retrain workers for needed employment areas
Focus on enhancing unemployed individuals’ characteristics for improved employability.
how would the government respond to seasonal unemployment ? - demand
Extend operational seasons
Eg. Hotels could attract customers with various packages during different times of the year
The government can subsidise innovation in industries where the operational season could be extended e.g. helping farmers to develop polytunnels on their farms extends the growing season
how does the government respond to frictional unemployment ? - supply side
Implement retraining schemes for workers. Aim for a better match of workers’ skills with employers’ needs
Reduce workers’ search periods between jobs by ensuring awareness of job openings
how does the government respond to cyclical unemployment ? - demand side (cyclical fluctuations)
Take measures to stimulate aggregate demand
Monetary & fiscal policy to counteract unemployment
when does real wage employment occur?
Real wage unemployment occurs when wages are inflexible at a point higher than the free-market equilibrium wage
Usually caused by the existence of minimum wage laws
The higher wage creates an excess supply of labour
This excess supply represents real wage unemployment
draw real wage diagram
diagram analysis
Equilibrium employment occurs when demand for labour equals the supply of labour
This determines the equilibrium real wage rate (We) and quantity (Qe)
If wages are fixed above the equilibrium (W1), more workers will supply labour (Qs of labour)
Fewer firms are willing to pay the higher wage, therefore demand for labour falls to Qd for labour
At this point, quantity supplied of labour is greater than quantity demanded of labour (Qs > Qd)
This leads to an excess supply of labour, creating real-wage unemployment
Free market economists argue that, in a competitive labour market, real wage unemployment should be temporary
Competitive forces are expected to bring down the real wage to We, eliminating the excess supply of labour and restoring full employment
However, if labour market rigidity or ‘stickiness’ exists, often caused by factors like trade union power, that prevents real wages from falling below W1, the market mechanism may fail to clear excess supply
what does full employment not mean?
Full employment does not mean that everyone in the working population is willing to work
There will always be people moving between jobs (frictional unemployment) or a level of structural unemployment
what do frictional and structural unemployment make up?
Frictional and structural unemployment make up what is called equilibrium unemployment
Equilibrium unemployment exists when the economy’s aggregate labour market is in equilibrium. It is the same as the natural level of unemployment
draw the diagram of natural rate of unemployment
diagram analysis
Q1 indicates the number of workers willing to work at the full employment real wage rate WFE
QFE is the ‘full employment’ level of employment
QFE includes those workers willing to work, plus the number of workers who are structurally and cyclically unemployed
The natural rate of unemployment is the difference between between Q1 and QFE
The distance between ASL and the curve ASL1 shows the amount of frictional and structural unemployment in the economy at the full employment wage rate WFE, namely the number of workers who are willing and able to work at this wage rate
what are the effects of unemployment on the government
increased spending on benefits
less tax revenue
increased spending on retraining
what are the effects of unemployment on the economy
increased crime
vandalism
increased ant social behaviour
increased homelessness
what are the effects of unemployment on the individual?
loss of income
health issues
mental instability
sense of failure
marital failure
stress increase
suicide
what are the effects of unemployment on the firms?
loss of sales revenue
loss of output / production
changes the skill level in the economy
who may long term unemployment affect?
individuals
the economy
government
firms
