Topic 3.2 Employment and Unemployment Flashcards
Unemployment definition
The unemployed consists of those of working age who are willing and able to work, actively seeking work but who do not have a job.
2 ways to measure unemployment
Labour Force Survey (LFS)
Claimant Court
Labour Force Survey (LFS)
A massive survey conducted by the ONS in 40,000 households and they can extrapolate from these answers to be magnified/representative to the rest of the population. Main measure of unemployment.
Gives figures on employed, unemployed and economically inactive.
Drawbacks of LFS
- Very small sampling size; therefore sampling errors (+- 3% error)
- Very expensive
- It doesn’t take into account underemployed people
- Disparities (doesn’t tell unemployment within specific groups, e.g race, sex, regions etc)
Economically inactive
The number of people of working age who aren’t willing to work
Unemployment rate formula
Unemployment rate = (Unemployed / Economically Active) x 100
Economically active - number of employed + unemployed people
Claimant count
This is the total number of people claiming unemployment benefits.
Drawbacks of Claimant Count
- Not everyone will be able to claim it
- Not everyone can claim it (e.g you have a large amount of savings/a different person is earning)
The 2 above explains why this measure often leads to a lesser value of unemployment. - Subject to fraud
4 types/causes of unemployment
Seasonal unemployment
Frictional unemployment
Cyclical unemployment
Structural unemployment
Seasonal unemployment
This is where, during specific seasons, you are unemployed, for example a ski instructor during summer
Frictional unemployment
This is when a worker is in between jobs, for example they voluntarily left that job to look for a better job.
Cyclical unemployment (+ Diagram)
When there is a lack of AD in an economy. This results in lower GDP and higher unemployment. Due to 2 factors:
1. Since labour is derived demand and consumption is a large factor of AD, if consumprion decreases so does labour.
2. Consequently, less consumption means less profits and in order to maintain profits they must cut costs (largest cost being workers) so more unemployment.
(Diagram - One LRAS curve and AD1 shifted left to AD2).
Structural unemployment
The immobility of labour due to a long-term change in the structure of an economy.
2 types of immobility of labour (SU)
- Occupational immobility of labour - skills mismatch
- Geographical immobility of labour - people unable/unwilling to physically move to job vacancies
Causes of SU
- Technology advancements - automate physical jobs
- Loss of comparative advantage - when an industry can produce a good/service lower than ones abroad/far away. This will see a big decline in demand (if advantage lost), therefore, SU.
- Existing industries modernise therefore different skills are requires (or if economies go from primary -> secondary)
Costs of unemployment
- Low output -> constraint to economic growth
- Deterioration of Govt Finances (income tax + VAT, corporation tax decreases + more govt spending results in national debt)
- Social costs (benefits, mental health, crime) needed to be paid by governments + bad for society
- Costs to other countries - damages their exports
- Lost income - lower living standards
- Hysterisis - when unemployment becomes long-term in nature therefore someone is likely to lose their skills/become outdated. Essentially during time, people become more unemployable so they adjust to low income life, and eventually could become economically inactive.
Benefits to unemployment
- Greater pool of workers for firms
- Low inflation
- Improved current account position (less imports)
Evaluation on unemployment
1) Rate of unemployment (if it’s near the natural rate, then it’s ok)
2) Duration of unemployment
3) Type of unemployment (structural much worse than other 3)
4) Distribution of unemployment (don’t want high youth unemployment as they can be deskilled much easily and more victim to hysterisis.
