Unemployment

Question 1

Define unemployment

Answer 1

Unemployment refers to the total number of people who are not working bit are looking for a job.

Question 2

What are the governments two measures of unemployment?

Answer 2

1) The Claimant Count - this refers to he total number of people that are not working and are receiving benefits from the government. In August 2021 this was around 4% of the labour force - around 2 million people
2) The labour force survey - This measures all the people hat are unemployed and who claim they have been actively seeing work over the last 4 weeks, even if they are not entitled to any benefits. Amongst this count are students, pensioners and parents returning to work if they are in a marriage, Usually we would expect the figure to be higher than the claimant account because of these extra group of people included.

Question 3

What are the negative effects of unemployment?

Answer 3

1) Tends to be expensive for the government:
- Costs the government a lot when someone is unemployed such as benefits
- Unemployed means no tax is being paid to the government.

That money has an opportunity cost to he government e.g. infrastructure, health service, education

2) Represents a waste of resources - The real opportunity cost to the economy is all the goods and services the economy could be producing if everyone unemployed was working - The point on the PPF graph would be on the line instead of within it.
3) Unemployment will also tend to have a number of negative social costs for the economy , that tend to be payed for by the government (Tax payers). E.g. when people are unemployed it can negative effects on health such as stress, cold lead to an increase in crime, it may lead to a family splitting and increasing levels of poverty.

Question 4

Causes of unemployment

Answer 4

1) Lack of spending in the economy so output is well below its full employment maximum (In a recession) For Keynesian economists they believe the economy can be stuck in a recession for a significant period of time, however monetarists believe this will only ever be a short run problem.
2) Frictional Unemployment - Unemployment where people are in-between jobs or looking for their first job. This type of unemployment is impossible to get rid of completely.
3) Structural unemployment - Caused when a particular industry goes into decline e.g. the coal industry in the south of wales.
4) Technological unemployment - Workers being replaced by machines e.g. the car industry
5) Classical Unemployment - is caused because wages might be too high. Often can be blamed on:
- The government - setting minimum wage too high
- Trade union - pushing employees to increase wages by too much (By threatening to go on strike)
6) Seasonal unemployment - Where workers are only needed at certain times of the year e.g. holidays
7) Voluntary unemployment - People who don’t want to work, they would rather live on benefits. E.g. they are too lazy

reasons 2-7 are sometimes referred to as supply side causes of unemployment.

Question 5

Policies to reduce unemployment

Answer 5

1) Demand based unemployment - Reduce tax/interest rates to increase spending
2) Frictional unemployment - The government cold offer more information about jobs, or lower benefits
3) Structural Unemployment - Re-training, Encourage new business to go into that area, put tariffs on imported goods
4) Technological unemployment - Re-training
5) Classical Unemployment - Reduce the power of trade unions, reduce the minimum wage
6) Seasonal unemployment - Nothing you can do
7) Reduce Benefits, Provide stronger incentive (E.g. tax credits)

All these policies except from #1 are sometimes referred to as supply side policies because they aim at increasing efficiency.