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Chapter 3.2 - Low Unemployment (Unemployment Types (Structural (Caused by…
Chapter 3.2 - Low Unemployment
Employment and Unemployment
The reward for labour is wages which most households rely on for much of their income
Full employment occurs when an economy is using most of its workers to produce output
Labour is one of the four factors of production needed in order to produce the goods and services
Unemployment is when people of working age are both able and willing to work at the current wage rates but cannot find employment
Employment refers to the use of labour in the economy to produce goods and services
How is unemployment measured?
This method involves measuring unemployment according to the amount of people that claim unemployment-related benefits like jobseeker's allowance
We use a method called the Claimant Count method
Unemployment Types
Structural
Caused by declines in some industries. Demand may fall in some industries permanently causing company to close down and leaving behind unemployed workers
Cyclical
When there is a fall in total demand in the economy. As demand falls, workers become unemployed, lower average income, less money spent, less workers needed as producers cut back on production and the cycle continues causing a massive problem
Frictional
When workers leave their jobs but do not start new jobs straight away so there are time lags between employments
Voluntary
When people choose not to work
Seasonal
Caused by seasonal workers not being employed out of season for example people in the tourist industry
Technological
When modern technology means fewer workers are required to produce a given amount of output
Benefits of Unemployment
Wage Rates
If there is a lot of unemployment, wages are kept down. This is bad for the workers, but good for the producers
Competitiveness between firms
As wages kept down, this makes costs lower and firms are more competitive. This helps sales in UK and overseas markets
Frictional Unemployment
A bit of frictional unemployment is good as if there is a new jobs space or industries are changing due to technology, there is labour to fill in the space
Costs of unemployment to Individuals
Other problems for individuals
As well as lower living standards, unemployed individuals may suffer from a loss of status and self-esteem
Excluded Workers
Some workers are unemployed for such a long time they become unemployable. People reluctant to give them jobs as they got no recent experience of work
Lower living standards
When workers lose jobs, they lose the wages that go with them. Income from benefits is way lower than income from job
Costs to taxpayers
Unemployed are entitled to state benefits and if unemployment rate is greater, more tax is payed
Costs of unemployment to Government
Unemployment leads to more unemployment
As total spending in economy falls, demand for workers falls, unemployment rises
Budget deficit
Situation where governments spends more than it receives from taxes. Govrenment has to spend more on benefits and loses tax revenue from workers when they become unempoloyed. As people have less to spend than before, government will receive even less tax revenue in VAT and other ways
Labour resources wasted
When labour is unemployed this means that the economy could produce more goods and services than it is. This is a waste of labour resource
Costs of unemployment to Regions
Uneven unemployment
Unemployment is spread unevenly throughout country. Some areas will suffer higher rates than others.
Rate and Level of Unemployment
The level of unemployment refers to the number of people in the working population who are unemployed
Unemployment rate shows the percentage of the country's workforce that is unemployed
Unemployment Rate = Number of unemployed/workforce*100