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Test 1: Labour Markets: Macro - theme 2.1.3 Unemployment + employment -…
Test 1: Labour Markets: Macro - theme 2.1.3 Unemployment + employment
Measures of Unemployment
Claimant Count
No. of people receiving benefits for being unemployed
Provides number of claimants on particular day each month + the numbers joining+leaving the count each month
International Labour Organisation and UK Labour Force Survey
ONS uses ILO definition of unemployment + employed
Through the ILO, anyone over 16 can be classed as employed, unemployed, or economically inactive
Employed - those who do more than 1hr of paid work/week, or are temporarily away from work (e.g. on holiday), are on a gov supported training scheme, do minimum 15hrs unpaid work for their family/business
Unemployed - those of working age who are w/o work, able to work and seeking work and have actively sought work in the last 4 weeks and are available to start work in the next 2 weeks
Inactive - those neither employed nor unemployed; people of working age not seeking employment as well as those seeking employment but not able to start work e.g. those in study, looking after family, health related issues, discouraged workers (those fed up of applying), retirement, those who do not want/need to work
Labour Force Survey (LFS) = sample of people living in households, legal requirement for every country in the EU
Asks questions about personal circumstances + activity in the labour market to class people as employed, unemployed, inactive as by the ILO definitions
Figures are only an estimate of the true level of unemployment as it’s measured by a sample
Comparisons between claimant count and LFS
Some people are not in LFS but are in claimant count
e.g. those working in the hidden economy, or fraudulently claiming benefits
Some people are in LFS but not in claimant count
E.g. those who aren’t eligible for benefits but are classed as unemployed
LFS tends to be higher than claimant count due to this
Sometimes claimant count + LFS go in diff directions
Could be because LFS is only a sample + diff types of people have been asked which can lead to short term changes in the rate
Also things may be happening in the labour market which aren’t covered by claimant count, e.g. more students could look for work along w/ studies or more people above state pension age may look for work
some argue claimant count + LFS underestimate the unemployment rate as they don't include those
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 a job if offered or are in education as they can’t get a job
= these are the hidden unemployed
Rates, underemployment, significance of changes in activity
Economically active
= employed+unemployed
they are engaged in the labour market + are people employers can look to recruit
The workless are the unemployed and inactive
Unemployment rate
= % of population of working age who are employed
Employment rate
= % of economically active who are unemployed
Activity/participation rate
= % of population of working age who are economically active
Inactivity rate
= % of population of working age who are inactive
underemployment
The underemployed = those in part time or zero hour contracts when they would prefer to be in full time and people who are self-employed but would rather be employees
Includes those who are in jobs that don’t reflect their skill level, e.g. a university graduate can’t find a graduate job so works as a bartender
Underemployed aren’t included in any unemployment stats
Underemployment tends to increase during recessions as firms will have to reduce staff hours instead of making them redundant + having to pay expensive redundancies packages.
Underemployment doesn’t have as many negative effects as official unemployment, but it does mean the underemployed have lower incomes + so will spend less, reducing AD +economic growth
Significance of changes in activity
Increases in inactivity will decrease size of labour force, causing a fall in productive potential of a country - lower GDP, tax revenues as less people are working
Decreases in inactivity could just result in more people being unemployed if there are no jobs available to them
Types +causes of Unemployment
Frictional unemployment
People moving between jobs
Not a big issue as Short term unemployment
Can extend because of information gaps - policies to close these gaps help e.g. advertising available jobs better. Could make a gov database with all job vacancies - would be very useful.
Structural unemployment
Long term decline in demand in an industry leading to reduction in employment e.g. because of increasing international competition/technology
Where demand for labour<supply in an individual labour market e.g. ship building
Lack of geographical+occupational mobility means people will remain unemployed, so need to be retrained to get a job
Types of structural unemployment
Regional unemployment
Certain areas of a country suffer from v low levels of unemployment due to industry closures
this is made even worse by the fact that loss of jobs can mean a fall in demand for other businesses in the area, forcing more closures+job losses
Sectoral unemployment
Where one sector (primary, secondary, tertiary) suffers a dramatic fall in employment
Technological unemployment
Where an improvement in tech means jobs are replaces
Seasonal unemployment
Some employment is strongly season in demand
E.g. tourism is only prominent during certain times of year so only demands large no.s of workers at a specific time
There is little that can be done to prevent this from happening in a free market economy
Cyclical/demand deficient unemployment
Unemployment due to a general lack of demand for goods+services within the country
Aka Keynesian ‘demand deficient’ unemployment
E.g. when there’s a recession/severe slowdown in economic growth, we see rising economic unemployment due to plant closures, business failures, and an increase in worker layoffs+redundancies
This is due to a decrease in demand causing businesses to cut employment to control costs+restore some profitability
Causes
changes in technology
changes in demographics - e.g. society is aging
macroeconomic shocks
Real wage Inflexibility
Unemployment that is the result of real wages being above their market clearing level leading to an excess supply of labour
Some workers may be prepared to work for less than minimum wage, companies may be prepared to take on more workers if this is so, but this is illegal so unemployed workers can’t get a job
Some believe minimum wage risks creating unemployment in industries where international competition from low-labour cost producers is severe.
But, as yet there is relatively little evidence that minimum wage has created rising unemployment on the 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
Migration and skills
Increase in net inward migration tends to lead to increased jobs
Due to circular flow of income, immigrants’ spending creates jobs+total employment increases w/o an increase in unemployment
This depends on how much money workers send back home
However, it also leads to lower wages, particularly for the lower-paid, lower-skill jobs
UK firms can recruit foreign workers, labour supply increases, price equilibrium of labour is reduced
Increased competition for jobs
UK workers who have low motivation to work+are low skilled are most affected as they are competing in the job market w/ hard working, more skilled workers ready to take the same jobs as them
Higher incomes are rarely affected
Impacts of unemployment
Workers
Loss of income - economic hardship
If it persists for a long time , it can lead to loss of dignity + skills (labour market hysteresis), making one a weak candidate when seeking employment. Therefore, long-term unemployment can dramatically reduce a worker’s chances of re-employment.
Skills deterioration (if long term)
Those in jobs have lower job security, may also see a fall in wages as firms can easily replace workers if they complain
Firms
Decrease in demand for their goods (depending on YED) so fall in profit potentially
Long term unemployment can lead to skill deterioration of workers, so firms may have a smaller pool of skilled people to employ
Can offer low wages
Consumers
Consumers in areas of high unemployment could suffer from less choice, lower quality of goods
Unemployed consumers have less to spend
But firms could lower prices to increase demand for their products
Government
Fall in tax revenues
Higher spending on welfare payments
Increase in budget deficit - gov may have to increase taxation/scale back plans for public spending on public+merit goods e.g. NHS/education
May need to increase borrowing
Society
Unemployment represents loss of social welfare
Rising unemployment is linked to social deprivation
Loss of potential national output - represents inefficient use of scarce resources as its operating below its productive potential. If people choose to permanently become inactive, this has a negative effect on LRAS
If it persists, it can lead to Labour market hysteresis which exacerbates above factors