UNEMPLOYMENT 2.1.3 PMT NOTES

Question 1

MEASURES OF UNEMPLOYMENT

Answer 1

• Claimant count
• International Labour Organisation (ILO)
• UK Labour Force Survey (LFS)

Question 2

CLAIMANT COUNT

Answer 2

Number of people receiving benefits for being unemployment
- provides number of claimants on particular day each month + numbers joining/leaving count each month

Question 3

ONS (OFFICE OF NATIONAL STATISTICS) USES WHICH DEFINITION OF UNEMPLOYMENT + EMPLOYED?

Answer 3

ONS uses ILO definition of unemployment

Question 4

Through ILO, who can be classed as employed, unemployed or economically inactive?

Answer 4

Anyone over 16

Question 5

EMPLOYED

Answer 5

Those who do more than 1 hour of paid work a week /temporarily away from work (holiday) / are on gov supported training scheme / do minimum 15 hours of unpaid work for their family business

Question 6

UNEMPLOYED

Answer 6

Those of working age who are without work, able to work + seeking work + actively sought work in last 4 weeks + available to start work in next 2 weeks

Question 7

INACTIVE

Answer 7

• Those who are not employed/unemployed
• are people of working age not seeking employment / those seeking work but not able to start work e.g those in study, looking after family, health related issues, discouraged workers (fed up of applying), retirement, those who do not want/need job

Question 8

LFS

Answer 8

Sample of people living in households
- legal requirement for every country in EU
- asks questions about personal circumstances + activity in labour market to class people as employed, unemployed, inactive by ILO definitions
- figures are only estimate of true level of unemployment as it is measured by a sample

Question 9

COMPARISONS BETWEEN CLAIMANT COUNT + LFS

Answer 9

• some people may not be included in LFS unemployment measure but would in CC (may include people working in hidden economy/those who fraudulently claim benefits)
• but, some people not eligible for benefits but classed as unemployed so would appear in LFS but not CC (can be if partner working, if looking for work along full-time study, if around state pension age) - LFS tends to be higher than CC due to these reasons
• sometimes CC + LFS rates can be going in diff directions due to fact that LFS is only sample + diff types of people have been asked which can lead to short term changes in rate
  [also, there may be things happening in labour market not covered by CC, (e.g more students could look for work along their studies/more people above State Pension Age may look for work) ]

Question 10

Why does LFS tend to be higher than CC

Answer 10

some people not eligible for benefits but classed as unemployed so would appear in LFS but not CC (can be if partner working, if looking for work along full-time study, if around state pension age)

Question 11

sometimes CC + LFS rates can be going in diff directions due to fact that…

Answer 11

LFS is only sample + diff types of people have been asked which can lead to short term changes in rate
- also, there may be things happening in labour market not covered by CC, (e.g more students could look for work along their studies/more people above State Pension Age may look for work)

Question 12

IT IS ARGUED THAT BOTH CC + LFS UNDERESTIMATE FIGURE AS DO NOT INCLUDE THOSE:

Answer 12

• Working part time but would like to work full time
• on gov training schemes who would prefer employment
• classed as sick/disabled
• who aren’t actively looking for jobs but would take job if offered/are in education as cant get job

These are hidden unemployed

Question 13

IT IS ARGUED THAT BOTH CC + LFS UNDERESTIMATE FIGURE AS DO NOT INCLUDE THOSE:

Answer 13

• Working part time but would like to work full time
• on gov training schemes who would prefer employment
• classed as sick/disabled
• who aren’t actively looking for jobs but would take job if offered/are in education as cant get job

These are hidden unemployed

Question 14

ECONOMICALLY ACTIVE

Answer 14

employed + unemployed
- They are engaged in labour market + are people employers can look to recruit
- workless are unemployed + inactive

Question 15

EMPLOYMENT RATE

Answer 15

% of population of working age who are employed, + unemployment rate is % of economically active who are unemployed

Question 16

EMPLOYMENT RATE
UNEMPLOYMENT RATE

Answer 16

• % of population of working age who are employed
• % of economically active who are unemployed

Question 17

ACTIVITY/PARTICIPATION RATE
INACTIVITY RATE

Answer 17

• % of population of working age who are economically active
• inactivity rate is % of population of working age who are inactive

Question 18

UNDER-EMPLOYMENT

Answer 18

underemployed: those who are in part time/zero hour contracts when they would prefer to be full time + people who are self-employed but would rather be employees.
- also includes those who are in jobs which do not reflect their skill level, e.g university graduate that can’t find graduate job so is working as bartender.
underemployed aren’t included in any unemployment statistics.
Underemployment tends to increase during recessions because firms will just reduce staff hours instead of making them redundant + having to pay expensive redundancies packages.
It doesn’t have as many negative effects as official unemployment, but it does mean underemployed have lower incomes + so will spend less, reducing AD + growth of economy.

Question 19

SIGNIFICANCE OF CHANGES IN ACTIVITY:

Answer 19

Increases in inactivity will decrease the size of labour force, causing fall in productive potential of country.
- will lower GDP + lower tax revenues as less people working
• but, decreases in inactivity could just result in more people being unemployed if no jobs available to them.

Question 20

4 TYPES OF UNEMPLOYMENT

Answer 20

Frictional, structural, seasonal, cyclical

Question 21

FRICTIONAL UNEMPLOYMENT

Answer 21

due to people moving between jobs
- could be due to new workers entering labour market /people who have chosen to leave their previous job.
These people may take while to locate + gain job that they are willing to accept.
This isn’t serious problem as it is only short term.

Question 22

STRUCTURAL UNEMPLOYMENT

Answer 22

where demand for labour is lower than supply in individual labour market e.g. ship building
more serious as it is long term decline in demand in industry leading to reduction in employment perhaps due to increasing international competition or technology.
- lack of geographical + occupational mobility means that people will remain unemployed, so need to be retrained in order to gain job.

Question 23

DIFFERENT TYPES OF STRUCTURAL UNEMPLOYMENT

Answer 23

Regional unemployment - where certain areas of country suffer from very low levels of employment due to industry closures; made even worse by fact that loss of jobs can mean fall in demand for other businesses in area, forcing more closures + job losses.
Sectoral unemployment - where 1 sector (primary,secondary, tertiary) suffers dramatic fall in employment.
Technological unemployment - where improvement in technology means jobs are replaced.

Question 24

SEASONAL UNEMPLOYMENT

Answer 24

Some employment is strongly seasonal in demand
- Industries like tourism only prominent during certain times of year so only demand large numbers of workers at specific time.
- Once that time of year has passed then labour force drastically reduced.
- Little that can be done to prevent this from occurring in free market economy.

Question 25

CYCLICAL UNEMPLOYMENT

Answer 25

unemployment due to general lack of demand of goods + services within country
- also known as Keynesian ‘demand deficient’ unemployment
- When there is recession or severe slowdown in economic
growth, we see rising unemployment due to plant closures, business failures + increase in worker layoffs + redundancies
- This is due to decrease in demand causing businesses to cut employment in order to control costs + restore some of their profitability

Question 26

REAL WAGE INFLEXIBILITY

Answer 26

unemployment considered to be result of real wages being above their market clearing level leading to excess supply of labour.
- Some workers might be prepared to work for less than minimum wage + companies may be prepared to take on more workers if could pay them less than minimum wage, but this is illegal + so unemployed workers cannot get job
- Some economists believe that minimum wage risks creating unemployment in industries where international competition from low-labour cost producers is severe.
As of yet, there is relatively little evidence that minimum wage has created rising unemployment on scale that was feared.
- can also be caused by unemployed workers refusing to take low paid jobs as they can receive more in welfare benefits

Question 27

MIGRATION

Answer 27

increase in net inward migration tends to lead to increased jobs. Since 1990s, UK has seen large increase in immigration from mainly Eastern European countries. Most of these people come to UK to work, are of working age + often take lower skilled jobs; are less likely to claim benefits than existing population.
Due to circular flow of income, immigrants’ spending creates jobs + total employment increases without increase in unemployment.
- depends how much money immigrant workers send back home.
But, it also leads to lower wages, particularly for lower-paid, low skilled jobs.
UK firms able to recruit foreign workers meaning that supply of labour is increased + so price equilibrium of labour is reduced
There is more competition for jobs + UK workers who have low motivation to work + are low skilled are most affected as they are competing in job market with hard working, more skilled workers prepared to take same jobs as them.
impact of this is only small (middle + higher income wages rarely affected)

Question 28

SKILLS

Answer 28

Economies progress over time, + as a result, higher skills are needed to work in them.
In UK 50 years ago, many jobs were available for those who couldn’t read/write but now there are few
For UK to maintain its employment levels, needs to increase skills of its workforce over time.
Structural unemployment is caused by lack of/wrong skills. E.g, engineering companies struggles to recruit skilled workers even though there are unemployed workers in local area.
If firms will not train staff, government has to step in to correct market failure but this is costly. As result, people become long-term unemployed as their skills don’t fit jobs on offer.
Migrant workers may fill these shortages if their skills fit.

Question 29

IMPACTS OF UNEMPLOYMENT ON WORKERS

Answer 29

Those who are made unemployed normally have loss of income which usually results in decline in their living standards.
They often suffer from stigma of being unemployed + feel degraded by process of signing on to receive benefits to support their family. can lead to stress, marital breakdown, suicide, physical illness etc.
- long-term unemployed (those unemployed for more than 12 months) often find it more difficult to get another job as they lose skills
- Those who are in jobs will suffer from lower job security + will fear being made redundant. They could also see fall in wages as firm can easily find someone to replace them if they complain about pay.

Question 30

IMPACTS OF UNEMPLOYMENT ON FIRMS

Answer 30

• There will tend to be decrease in demand for their goods (but depends on YED) + so this could lead to fall in profit.
• Long term unemployment can lead to loss of skills + reduce employability of workers, so firms have smaller pool of skilled people to employ.
  They can offer low wages as people will take job anyway as they know there is lack of jobs so have few options.

Question 31

IMPACTS OF UNEMPLOYMENT ON CONSUMERS

Answer 31

Consumers in areas of high unemplovment lose out as local shopping centres tend to be run down + don’t offer range of shops available to those in areas of low unemployment. They suffer from less choice. quality o goods may also decrease.

unemployed consumers lose out as have less available to spend

But, firms may lower prices + put on sales to increase demand for their product.

Question 32

IMPACTS OF UNEMPLOYMENT ON GOVERNMENT

Answer 32

reduced income results in fall in tax revenues + higher spending on welfare payments for families with people out of work, incurring opportunity cost as money could be better spent elsewhere.

• results in increase in budget deficit.
  will be likely that government will have to raise taxation /scale back plans for public spending on public + merit goods, such as NHS/education. may need to increase borrowing.

Question 33

IMPACTS OF UNEMPLOYMENT ON SOCIETY AS WHOLE

Answer 33

Rising unemployment linked to social deprivation.
- relationship with crime + social dislocation (increased divorce rates, worsening health + lower life expectancy).
- Areas of high unemployment often see fall in demand for local goods + services, leading to fall in income for those working in services + sometimes further loss of jobs.
- results in loss of potential national output + represents inefficient use of scarce resources. If people chose to leave labour market permanently, then this will have negative effect on LRAS + therefore damage economy’s growth
potential so country unable to achieve their desired PPF
- Taxpayers paying money to unemployed is not loss for economy as it is transfer payment but economy affected as there is fall in national output + social costs of unemployed e.g. violence + crime.