Unemployment Flashcards
Unemployment
When you are willing to and actively seeking work but don’t have a job, measured as a proportion of the economically active population (16-64)
UK unemployment stats
Employment Rate: 74.9% (33.77 million)
Unemployment Rate: 4.3% (1.51 million)
Youth Unemployment Rate: 13.9% (604,000)
Economically Inactive: 21.8% (9.4 million)
Non-working age: 23 million
Claimant Count
Measure of unemployment that includes those who are eligible to claim the Jobseeker’s Allowance
Labour Force Survey (by International Labour Organisation ILO)
Interviews around 53,000 households and covers those who are without any kind of job including part time work but who have looked for work in the past 4 weeks and are able to start work in the next 2 weeks
Advantages of Claimant Count
Includes everyone claiming the JSA
Regionally specific
Comes out every month so is more up to date
Cheap to run
Disadvantages of Claimant Count
Not every unemployed person claims (you can’t claim if your spouse earns £44k+)
Includes benefits cheats who claim despite being employed
Some who claim JSA may not be seeking work
Advantages of ILO Labour Force Survey
Broader so doesn’t suffer from ineligibility
Internationally recognised so it is easy for comparison
Disadvantages of ILO Labour Force Survey
Small sampling size
Response rates are very low so they use Claimant Count data
Underemployment
A worker who is technically employed, but is either over-qualified for the type of work or in part-time work which is undesired
Frictional Unemployment
Temporary unemployment due to people moving between jobs
Causes of Frictional Unemployment
Imperfect information in the labour market as the jobless are unaware of available jobs
Incentives issues such as jobless people getting a job but have less disposable income than they would if they claimed unemployment benefits
Structural Unemployment
Results from a lack of demand for the skills that a group of workers offer
Causes of Structural Unemployment
Technological advancement (e.g. development of self-service checkout machines at a supermarket have caused a decrease in demand for checkout workers)
Fall in demand for a specific type of worker due to lower cost labour in foreign counties (e.g. out-sourcing of low skill manufacturing to China and call centres to India)
Decline in a specific industry (e.g. coal mining)
Seasonal Unemployment
Occurs when demand for labour varies between seasons
Some workers, such as construction workers or workers in the tourism industry, tend to work on a seasonal basis
Real Wage Unemployment
Considered to be the result of real wages being above their market clearing level leading to an excess supply of labour
Demand-deficient / Cyclical Unemployment
Involuntary unemployment due to a lack of demand for goods and services
Causes of Cyclical Unemployment
Recession or severe slowdown of economic growth which causes plants to close, businesses to fail and an increase in worker lay-offs and redundancies
Supply-side / Voluntary Unemployment
When workers are either unable to work (occupational or geographical immobility) or unwilling to work (gap between JSA and pay is too small, unwilling to retrain, prefer working in the Informal Economy but still claim JSA)
Policies to solve Cyclical Unemployment
Need to boost AD: decreased interest rates, decreased income tax, increased government spending
Evaluation: increased AD can lead to higher inflation, worsening of the budget deficit and destruction of the environment if growth is unsustainable
Policies to solve Voluntary Unemployment
Need to improve employability: reduce occupational immobility by training schemes, education and work experience, reduce geographical immobility by increasing affordable housing in prosperous areas, increased job information and better transport
Need to improve willingness: cutting JSA, increase woking family tax credits, reduce income tax at lowest levels and stopping benefits
Evaluation: stopping benefits increases poverty and decreases equity
Policies to solve Real Wage Unemployment
Cut or decrease growth of wage rates
Reduce minimum wage
Reduce taxes on employment
Evaluation: reduced minimum wage increases poverty and decreases equity, reduced taxes on employment is expensive as government must increase spending
Employment
When you are in the working age and have paid work
Economically Inactive
When you are below 16, over 64 and not actively seeking work or not wanting to work
Hysteresis
Hysteresis in the natural rate of unemployment occurs when the unemployment rate remains very high over a prolonged period of time
Costs of Unemployment to Community
Increase in inequality
Increase in crime
Deprived areas if a local employer makes large redundancies
Costs of Unemployment to Individual
No income so standard of living decreases
Scarring (loss of skills while being unemployed)
Stress, depression, low self-esteem
Social exclusion because of loss of work and income
Costs of Unemployment to Economy
Consumption decreases so AD decreases so a NOG is caused
LRAS decreases as quantity of FoPs decreases
Hysteresis (loss of skills so LRAS decreases)
Brain Drain (loss of skilled labour abroad)
Costs of Unemployment to Taxpayer
Increased unemployment means increased government benefits so income tax is raised to pay of losses from paying benefits
Increased unemployment means government tax revenue decreases so income tax for employed people increases
Borrowing increases so national debt increases
Impact of Migration on Employment
LRAS shifts right due to increased quantity of FoPs
Likely to shift AD out creating derived demand for labour as immigrants consume in the UK economy
It depends on where your AD is
Impact of Migration on Unemployment
Migration increases the size of the labour force but if there is no demand for extra labour, unemployment increases
Supply curve shifts out due to increased supply of labour, decreasing wages and lowering incentive for low skilled workers to seek work
Evaluation: higher minimum wage prevents this from putting downward pressure below £12.21 / hour legal minimum
