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Employment and Unemployment (Types of Unemployment (Classical…
Employment and Unemployment
International Labour Organisation
Defintion
The ILO definition of unemployment covers people who are: out of work, want a job, have actively sought work in the previous four weeks and are available to start work within the next two weeks.
Economically Active
The economically active population are those who are either in employment or ILO unemployed
The active population includes most, but not all of the population of working age, e.g. 16 to 65,
Types of Unemployment
Classical
Unemployment may be caused by real wage inflexibility
Unions are likely to oppose reductions in terms and conditions of employment.
Occurs especially when wages rates are deliberately maintained above the equilibrium wage rate
Frictional
This is a short-term unemployment
caused by employees leaving one job and not immediately finding another (job search)
Cyclical
Unemployment levels are related to the business cycle and the resulting demand deficiency
Usually a short-, medium term unemployment
Structural
Longer term unemployment rates can be caused by both occupational and geographical immobility.
Unemployment caused by changes int he structure of the economy
May have longterm effects
Season
Unemployment common in agriculture and the tourist industries
Unemployment caused by changes in the weather
Regional
Some structural and seasonal unemployment impacts more on certain regions
Underemployment
Underemployment is a situation when a person is working, but not at his or her full capability given his or her experience and qualifications
Both unemployment and underemployment are a waste valuable scarce resources and means the economy is not operating on the PPF boundary,
Impact of Unemployment
Unemployment has both economic and social consequences
Unemployment is a waste of scarce resources
Increases poverty levels
negatively impacts individual well being
negatively impacts community cohesion
leads to a decline in government revenues through lower taxation returns at a time when social benefits (unemployment benefit) are increasing (expenditure)
Spending decreases VAT
Incomes falls (income tax)
profits reduce (corporation tax)
Migration on Unemployment
Net migration is compatible with full employment.
Migrants increase both the supply of labour, but also increased output and demand as they spend their incomes
The impact on unemployment through net migration will be influenced by the level of skills the new immigrants have and whether these are suited to the occupations with labour shortages
The Natural Rate of Unemployment
The Natural Rate of Unemployment is the rate of unemployment when the labour market is in equilibrium
It is called the 'non accelerating inflation rate of unemployment` (NAIRU)
If unemployment is at this 'natural' level, there is no tendency for inflation to increase
The natural rate of unemployment includes:
frictional unemployment
structural unemployment
This unemployment is caused by supply side policies rather than demand factors
Full employment over the long run- where everyone is employed- is unattainable and indeed undesirable, because this would create a totally inflexible labour market, where employees could not leave their current job to find a better one
The natural rate can persist in the long run