L12 - Unemployment, Causes, Consequences and Cures Flashcards
What is Unemployment?
When a person who is able and willing to work cannot find a job
What are the two measures of Unemployment?
- ILO Unemployment
- Claimant Count
What is the calculation for the Claimant Count?
Number of claimants/ (No employed in FT or PT Jobs + No of Claimants) X 100
What is the problems with Claimant Count?
- as the benefit system changes No of claimants changes
- Those who don’t claim benefit are not counted
- Counts anyone with two jobs twice
What is the ILO Unemployment Rate
ILO is a survey based measure rather than a number count
All people aged between 16 - 65 are put into 1 of 3 classes:
What are the 3 classes of ILO Unemployed?
(1) ILO employed
(2) Unemployed
(3) Economically inactive
What is ILO Employed?
Those who have at least 1 hours work per week; or who are on job training scheme or who do unpaid work for a family business
What is (ILO) Unemployed?
Either out of work or who have not tried to find work for 4 weeks, or who will start a job in the next 2 weeks
What is (ILO) Economically Inactive?
Everyone else
What is the advantages or disadvantages of ILO Measurement?
Advantage:
Measures those who say they are unemployed and not just those claiming benefits
Disadvantage:
Lumps together as ‘employed’ anyone who does just one hour’s paid work with those who work much longer hours
What are the types of Unemployment?
Structural, Cyclical, Seasonal, Frictional, Voluntary, Involuntary, Equilibrium Unemployment
What is Equilibrium Unemployment?
Frictional + structural Un. unemployment that exits when the economy is producing at its potential level
What are the statistics of the Long Term Unemployed?
Belgium, Ireland and Italy 60%; Germany, France and UK around 35%. Canada and the USA around 10% (before 2007, now around 30%)
What are the statistics for Low-Skilled Workers?
• Low-skilled workers are 4 to 5 times more likely to be unemployed than skilled worker.
75% of unemployed men are manual workers.
What are the consequences of Unemployment?
- Loss of output and spare capacity to the economy
- Loss of welfare
- Cumulative loss to UK between 2009-2014 is estimated at £230bn or nearly £4,000 for every member of the population or (£7,200 for each member of the working population)
- Unemployment often results in health problems including psychic costs (social costs that specifically represent the costs of added stress or losses to quality of life)
- Increases income inequality
- Social welfare payments prevent unemployment being the personal disaster it once was
- Longer term effects of high unemployment for the disillusioned who are no longer trying to make it within the system and who contribute to social unrest and crime are a matter for concern
What are the causes of Cyclical Unemployment?
- Cyclical or demand deficient unemployment is due to the presence of a negative output gap
- Negative output gap to cause demand deficient unemployment it is also necessary for wages to be sticky
- Labour markets not competitive (auction) markets
- Wages are effectively a regular payment to workers over an extended employment relationship
- Good workers are “tied in” with perks (pensions, health insurance company car) rather than face flexible wage rates (but bonuses)
What are the Causes of Equilibrium Unemployment?
- Unemployment which occurs when there is no GDP gap
- Frictional (or search) unemployment – caused by the normal turnover of labour, as people take a break between jobs
- Structural unemployment – caused by shifts in demand for existing products and development of new products; also geographical distribution of jobs and technological change
What is Hysteresis?
- Long term unemployment that results in the loss of skills
- States that historical rates of unemployment are likely to influence the current and future rates of unemployment
- Equilibrium unemployment may be higher after periods of high unemployment associated with large negative GDP gaps than after periods of low unemployment.
How do you identify differing types of unemployment?
Use the Beveridge Curve (U-V Curve)
Where:
V is Vacancies
U is Unemployment
What causes the differing shifts in Beveridge Curve?
- Skill Mismatches
- Labour Force Participation:
Number of people looking for jobs shift curve outwards - Long Term Unemployment:
Push the curve outward from the origin - Frictional Unemployment: Reduce No of firms searching for employees
- Economic and Policy uncertainty: Cause employers to hold vacancies for longer
