Measure of Economic performance pt. 2

Question 1

Measures of unemployment

Answer 1

The claimant count
The International Labour Organisation (ILO) and the UK Labour Force Survey (LFS)

Question 2

The claimant count

Answer 2

Number of people registered as unemployed and claiming unemployment benefit i.e. Job Seekers Allowance
- includes those out of work but capable, available and actively seeking for work

Question 3

International Labour Organisation and Labour Force Survey (current measure of unemployment)

Answer 3

LFS’s provide the ILO unemployment rate
- ILO identifies the number of people available and seeking for work but do not have a job

Question 4

Unemployment and Underemployment

Answer 4

Unemployment: number of people not in work but actively seeking work
Underemployment: the job someone is doing doesn’t reflect their skill level or they are working part-time but are willing to work full-time

Question 5

Causes of unemployment

Answer 5

• Structural unemployment
• Frictional unemployment
• Seasonal unemployment
• Cyclical unemployment (demand-deficiency)
• Real wage inflexibility unemployment

Question 6

Structural unemployment

Answer 6

When certain industries are in decline e.g. manufacturing jobs UK (non-transferable skills)
- customer service jobs are increasing, so over time structural unemployment becomes less significant

Question 7

Frictional unemployment

Answer 7

Created by those who are moving between jobs.
- sometimes indication of a healthy economy as people are willing to take the risk of changing jobs and bettering themselves

Question 8

Seasonal unemployment

Answer 8

Created when demand at particular times of the year is low e.g. jobs in seaside resorts in the UK will be lower during winter months so unemployment will increase

Question 9

Cyclical / Demand-deficient unemployment

Answer 9

Created during periods of recession and occurs during a downturn of the economic cycle. If AD falls or there is a demand-deficiency there is insufficient demand in the economy for all workers to have a job
Causes of this unemployment:
- increase in the use of imports from lower wage countries
- increase in the value of the pound (SPICED)
- external shocks such as energy price increases

Question 10

Real wage inflexibility unemployment

Answer 10

Real wages are inflexible downwards meaning cut in workers wages is rare
- if workers accepted lower wages they would find employment
- market for labour is affected by factors e.g. gov laws (min wage), benefits system and trade union negotiations
-these increase wage level to an artificial level not the equilibrium level

Question 11

Significance of migration and skills for employment and unemployment

Answer 11

• If immigrants find employment in the vacancies that exist in the country this will increase the level of employment, this is likely to lead to an increase in AD as consumption is likely to increase
• if immigrants fill positions that domestic workers had or are willing to work for lower wages it will increase unemployment, lowering the wage rate for certain jobs

Question 12

Effects of unemployment on consumers

Answer 12

• quality of goods may
  decrease
• affordable shops wont be able to pay staff
• unemployed consumers lose out as they have less available to spend
  However, firms may lower prices and put on sales to increase demand

Question 13

Effects of unemployment on firms

Answer 13

• decrease in demand for their goods (depending on
  YED), leading to fall in profit
• long-term unemployment can lead to loss of skills and reduce employability of workers, so firms have a smaller pool of skilled people to employ
• offer low wages as people will take the job anyway, they know
  there is a lack of jobs so have few options

Question 14

Effects of unemployment on workers

Answer 14

• loss of income resulting in reduced living standards
• suffer from stigma of being unemployed, feel degraded by applying for benefits to support their family, potentially leading to: stress, marital breakdown, suicide etc
• the long-term unemployed (unemployed for 12 months+) often find it more difficult to get another job as they lose skills
• the employed will suffer from lower job security and fear being made redundant, could also see fall in wages as the firm can easily find someone to replace them if they complain about pay

Question 15

Effects of unemployment on the government

Answer 15

• reduced income causes fall in tax revenues and higher spending on
  welfare payments for families with people out of work, creating an opportunity cost as the money could be better spent elsewhere:
• results in an increase of budget deficit
• likely the gov will have to raise taxation or scale back plans for public spending on public and merit goods, such as the NHS or education, they may need to increase
  borrowing.

Question 16

Effects of unemployment on society

Answer 16

• linked to social deprivation: relationship with crime and social dislocation (increased divorce rates, worsening health and lower life
  expectancy)
• fall in demand for local goods/services, leading to fall in income for those working in the services and sometimes further
  loss of jobs
• loss of potential national output and represents an inefficient use of scarce resources