Unemployment Flashcards
Unemployment
People able, available and willing to work at the going wage rate but cannot find a job despite an active search for work and are able to start within 2 weeks
Level of Unemployment
The number of people who are unemployed
Rate of unemployment
The % of the labour force that are unemployed
Rate of unemployment equation
Unemployment
————————- x 100
Labour force
Labour force
Includes people who are economically active. People who are willing and able to work.
Economically inactivity
Neither in employment or unemployment
Reasons for economic inactivity (5)
Student
Looking after family
Long-term or temporarily sickness
Retired
Discouraged worker
Claimant count
The number of people claiming job seekers allowance or universal credit
Labour force survey
A quarterly survey of 60k households complied by the ONS studying the employment circumstances of the UK population
Problems of the claimant count (4)
• Not everyone who is eligible signs on
• Some temporarily unemployed don’t claim
• Changing criteria for UC
• Some have jobs in the black economy and still claim
Advantages of the Labour force survey (2)
Recognised as the most reliable
Picks up trends in service
Labour force survey disadvantages (2)
Costly to compile
Subject to sampling errors
Underemployment
When individuals work but they want to work more often
Unemployment: negative consequences for the Economy (3)
• Lost output
• Lack of demand
• Hysteresis: high unemployment leads to higher unemployment because people have less disposable income
Unemployment: consequences for Business (3)
Reduced demand and profits
Less incentive to invest
Reduced motivation for workers
Unemployment: consequences for the Unemployed (3)
Lower living standards
Reduced chances of finding work
Lose skills they once had (de-skilling)
Unemployment: consequences for the Government (2)
Lower tax revenue
Increases spending on benefits
Benefits of unemployment (3)
• Reduced risks of inflation
• Bigger pool if workers for businesses
• Rise in Entrepreneurship and self employment
Types of Unemployment (5)
Frictional
Seasonal
Structural
Real wage
Cyclical
Seasonal unemployment
When people are unemployed at different times in the year when their is lack of demand within that industry
Examples of seasonal unemployment (2)
Tourism
Farming
Structural unemployment
Caused by a mismatch between the skills people have and the jobs that are available (industry decline) or when workers get replaced by machinery
Frictional unemployment
When people are temporarily unemployed due to movement between jobs or someone who has recently graduated
Cyclical unemployment
• Is involuntary and due to a lack of demand
• During a recession we see a rise in unemployment because of failing businesses
• Other firms may try to cut costs to survive or maintain profits this is know as Labour shedding or down-sizing
Policies to incentive businesses to employ (3)
• Macro stimulus (boost AD) (+ Multiplier effect)
• Reduce the cost of employment
• Competitive policies e.g. reduce corporation tax and create incentives for new businesses
Policies to incentives the unemployed to find work (3)
• Reduced occupational immobility: an expansion of apprenticeships
• Improved geographical immobility: better public transport
• Stronger work incentives: higher wage and cut benefits
Most important thing to consider when trying to reduce unemployment
Is making sure that the policy focuses on the type of unemployment
Voluntary unemployment
Workers choose not to work at the current equilibrium wage rate
Reasons for voluntary unemployment (3)
• Overly generous welfare benefits
• High rate of taxes
• Workers seeking better employment conditions
Involuntary unemployment
Workers are prepared to accept the existing wage rate but are unable to find a job
Reason for involuntary unemployment
A lack of AD
Real wage unemployment
When wages are above the equilibrium level causing the supply of Labour to be greater than the demand
Reasons for real wage unemployment (2)
• Trade unions
• National minimum wage
