L12 - Unemployment, Causes, Consequences and Cures

Question 1

What is Unemployment?

Answer 1

When a person who is able and willing to work cannot find a job

Question 2

What are the two measures of Unemployment?

Answer 2

• ILO Unemployment

- Claimant Count

Question 3

What is the calculation for the Claimant Count?

Answer 3

Number of claimants/ (No employed in FT or PT Jobs + No of Claimants) X 100

Question 4

What is the problems with Claimant Count?

Answer 4

• as the benefit system changes No of claimants changes
• Those who don’t claim benefit are not counted
• Counts anyone with two jobs twice

Question 5

What is the ILO Unemployment Rate

Answer 5

 ILO is a survey based measure rather than a number count

 All people aged between 16 - 65 are put into 1 of 3 classes:

Question 6

What are the 3 classes of ILO Unemployed?

Answer 6

(1) ILO employed
(2) Unemployed
(3) Economically inactive

Question 7

What is ILO Employed?

Answer 7

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

Question 8

What is (ILO) Unemployed?

Answer 8

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

Question 9

What is (ILO) Economically Inactive?

Answer 9

Everyone else

Question 10

What is the advantages or disadvantages of ILO Measurement?

Answer 10

 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

Question 11

What are the types of Unemployment?

Answer 11

Structural, Cyclical, Seasonal, Frictional, Voluntary, Involuntary, Equilibrium Unemployment

Question 12

What is Equilibrium Unemployment?

Answer 12

Frictional + structural Un. unemployment that exits when the economy is producing at its potential level

Question 13

What are the statistics of the Long Term Unemployed?

Answer 13

Belgium, Ireland and Italy 60%; Germany, France and UK around 35%. Canada and the USA around 10% (before 2007, now around 30%)

Question 14

What are the statistics for Low-Skilled Workers?

Answer 14

• Low-skilled workers are 4 to 5 times more likely to be unemployed than skilled worker.

75% of unemployed men are manual workers.

Question 15

What are the consequences of Unemployment?

Answer 15

• 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

Question 16

What are the causes of Cyclical Unemployment?

Answer 16

• 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)

Question 17

What are the Causes of Equilibrium Unemployment?

Answer 17

• 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

Question 18

What is Hysteresis?

Answer 18

• 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.

Question 19

How do you identify differing types of unemployment?

Answer 19

Use the Beveridge Curve (U-V Curve)

Where:
V is Vacancies
U is Unemployment

Question 20

What causes the differing shifts in Beveridge Curve?

Answer 20

• 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