Week 2- Unemployment Flashcards
Define unemployment
Unemployment refers to people who are willing and able to work but don’t currently have a job
Why is unemployment a negative?
1) Unemployment affects not only the economic development of society, but also its stability
2) An individual unemployed is both unproductive and a drain on society’s resources
3) Not only does unemployment indicate that the economy is not operating at its full capacity, but politicians have noticed that high unemployment correlates with losing elections
How many main reasons are there as to why unemployment is a serious problem?
2 main reasons
What are the main reasons as to why unemployment is a serious problem?
1) Lost income and production
2) Losses in human capital
Why is lost income and production a problem?
These losses are large for the people who bear them and they make unemployment a frightening prospect for everyone
Unemployment benefits (money the government pays regularly to unemployed people) create a safety net, but they do not fully replace lost earnings (never as high as earnings from actual work) … they lead to resulting losses in income which lower consumption and GDP (less disposable income)
What are unemployment benefits and what are they now known as in the UK?
Unemployment benefits are the money the government pays regularly to unemployed people. In the UK, the term “unemployment benefit” was officially replaced in 1996 by the Jobseeker’s Allowance (JSA)
What are the potential downsides of unemployment benefits?
Some economists believe generous unemployment benefits have harmed the UK economy
May promote laziness
Why is lost human capital a problem?
When a person becomes unemployed for longer than a year (long-term unemployment), their future earning and employment prospects are damaged
For example, a school teacher who loses their job due to spending cuts becomes unemployed for a long time. During this period their skills deteriorate because they are no longer teaching classes, studying new teaching methods, or learning from colleagues. On top of this, they lose some self-confidence. In the end, they accept a part-time position as a teaching assistant before working back to the salary and workload they initially had
This is an example of how unemployment can lead to losses in human capital
What is human capital?
The OECD (Organisation for Economic Co-operation and Development) defines human capital as the knowledge, skills and attributes of individuals that are used to produce goods, services and ideas in markets
What is long term unemployment?
When a person becomes unemployed for longer than a year
How do governments overcome the negative consequences of unemployment?
Governments make continuous efforts to measure unemployment accurately and to formulate policies to eliminate – or at least mitigate – its negative consequences
Who is responsible for measuring unemployment in the UK?
The Office for National Statistics (ONS)
What is the labour force survey (LFS)?
The Labour Force Survey (LFS) is a large-scale household survey conducted each quarter by the ONS
What does the labour force survey involve?
The LFS takes a sample of people living in private households in the UK
The survey asks a series of questions about respondents’ personal circumstances and their activity in the labour market
Through these questions each respondent is classified as employed, unemployed or economically inactive
The design of the survey means that in any 3-month period approximately 41,000 households and 80,000 people aged 16 and over will be interviewed
Thus, representative results can be produced for the whole economy
What is the official definition/criteria of unemployment?
1) Those without a job, but have been actively seeking work in the past 4 weeks and are available to start work in the next 2 weeks
2) Those waiting to be called back to a job from which they were laid off
3) Those waiting to start a new job in 30 days
How does the ONS break down the population in terms of employment?
1) At the the top we have the whole population
2) The whole population is split into two broad categories: the working-age population and others
- the working- age population is the total number of people aged 16 to 64 who are not in prison, hospital, or some other form of institutional care
3) The ONS divides the working-age population into two groups: the economically active (the workforce) and those who are economically inactive
- individuals in the workforce (economically active) are those who have a job or are willing and able to take a job
- individuals who are economically inactive are those who do not want to work, such as full-time students, the retired and the plain bone idle
4) The ONS also divides the economically active – the ‘workforce’ – into two groups: the employed and the unemployed
- the employed have a full-time job or a part-time job
- the unemployed are individuals without a job who fall into one of the 3 categories identified earlier as the criteria to be counted as being unemployed
Individuals in the working-age population who are neither employed nor seeking a job are economically inactive.
See image in notes for visual- good image to remember to pin down differences between employment terms
Is unemployment a matter of laziness?
Note that unemployed individuals are economically active: they are searching for a job. Hence, unemployment is not a matter of laziness
