3.2.3.2 EMPLOYMENT AND UNEMPLOYMENT

Define unemployment

Unemployment refers to the situation in which people who are capable of working an are actively seeking work but do not have a job

What is it called when you are not actively looking for a job?

Economically inactive

Why may someone be economically inactive?

• stay at home parent

• under 16

• prison

• illness so unable to work

What is stagflation?

High inflation and low economic growth

Define the labour force

The labour force (the workforce) is the total number of people in a country who are of working age and are either employed or actively seeking employment

What are the 5 sections of an economic cycle?

• downturn

• recovery

• recession

• depression

• boom

What goes on the axis of an economic cycle graph?

Real GDP

and

Time

What are the gaps called in an economic cycle?

• positive output gap

• negative output gap

What type of unemployment does does the economic cycle link to?

Cyclical unemployment

What is a recession?

2 consecutive quarters (3 months) of negative GDP growth (6 months in total)

What did Ronald Reagan say about America being a large economy?

“When America sneezes, the whole world catches a cold”

What and when were the NICE years?

1997 - 2007

Non-inflationary continuous economic growth

Define "involuntary" unemployment

Occurs when people want to work at the current wage but cannot find a job, usually caused by lack of demand in the economy

Define "voluntary" unemployment

Happens when people choose not to work, even though jobs are available

Define "frictional" unemployment

Short-term unemployment that occurs when people are between jobs or entering the workforce for the first time

Why is frictional unemployment a good thing?

It helps workers gain skills

Define "structural" unemployment

Results from mismatch between workers skills and job requirements or geographical mismatch

What is the main cause of structural unemployment?

Some industries go into decline

What are the 3 sectors in the economy? (Linking to structural unemployment)

Primary - natural resources (oil, gas, coal, fishing)

Secondary - manufacturing

Tertiary - services

What is a real world example of structural unemployment?

Miners in the North East - when the mines shut down, the workers had a mis-match of skills (miners were paid well)

Define "cyclical" unemployment

Caused by economic downturns or recession when demand for goods and services fall

Is cyclical unemployment voluntary or involuntary?

Involuntary

How does demand affect cyclical unemployment?

When demand is deficient (not enough AD) - cyclical unemployment occu

Define "real-wage" unemployment

Occurs when wages are kept high, causing firms to hire fewer workers

Define "equilibrium" unemployment

The level of unemployment that executes even when the labour market is in balance

What equals when equilibrium occurs?

AS = AD

Define "natural rate of unemployment" unemployment

The unemployment rate when the economy is at full employment

What is the natural rate of unemployment also known as?

Full employment

What is the letter for the natural rate of unemployment?

Yn

When does full employment occur?

AD = AS

What % does Beverdige say is full employment?

3% (so 3% do not have a job)

Define "seasonal" unemployment

Occurs when people are unemployed at certain times of the year due to the nature of their job

Examples of seasonal unemployment?

Harvesting, tourism

Using Keynes, explain how deficit AD leads to involuntary unemployment?

• AD falls (C+I+G+(X-M))

• fall in output

• derived demand for labour falls (firms need fewer workers)

• involuntary unemployment (worked are laid off)

What are the 2 ways to measure unemployment?

• labour force survey (household survey)

• claimant count (total number of people collecting JSA and UC)

What is JSA and UC?

Job Seekers Allowance

Universal Credit

What is Universal Credit?

Putting all benefits (house, disabilities, child) together and paying it once a month

Would Universal Credit be more or less appealing? Why?

Less appealing - changed from being paid every week to every month

What is a gig economy? How well paid is it?

You choose how many hours you work - not well paid as it depends on market forces

What are some examples of gig economy?

Uber, Deliveroo, Just Eat

Why was unemployment so high in 1980s?

1980s - recession

What is the current unemployment rate?

4%

Which age group unemployment is on a high?

Youth unemployment

What age does “youth” class as?

16 - 24

What is the current youth unemployment rate?

16%

What are the 4 things that the national rate of unemployment can hide?

1. Regional variations (areas with declining industries often have much higher unemployment)

2. Local variations (transport links, availability of jobs)

3. Variations in unemployment by age, gender, ethnicity and other social backgrounds (higher unemployment)

4. It doesn't tell us about how long people have been out of work (duration of joblessness - loss of skills)

Why may there be large levels of unemployment in The West Midlands?

Due to industrialization, historically dependent on manufacturing

Why may there be low levels of unemployment in Northern Ireland?

It has a smaller population which means a smaller labour force

Has the population of the UK increased?

Yes

Has the unemployment in the UK increased or decreased?

Variations (large increases and large decreases)

Define long term unemployment

Long term unemployment is when a person has been unemployed for a prolonged period, usually 12 months or more, despite being willing and able to work

Define mass unemployment

Mass unemployment refers to a situation where a very large proportion of the labour force is unemployed at the same time, usually across a whole country or region, and for a significant period

Why may South Africa have high unemployment?

South Africans entering the labour market do not have skills that employers demand

Define youth unemployment

Youth unemployment refers to the situation where young people, usually aged 15-24 are willing and able to work but cannot find a job

Why is youth unemployment relatively high?

• lack of experience

• skills mismatch

• still in education

• competition for jobs

• labour market regulations

• economic cycles

• frictional unemployment

Define discouraged workers

Discouraged workers are of working age and are able to work

But they have stopped actively looking because they believe no suitable jobs are available, or that they will not be hired

What is hidden unemployment?

Hidden unemployment refers to the people who are willing and able to work but are not counted in the official unemployment statistics

What causes hidden unemployment?

Discouraged workers, under unemployment, informal employment and economic recessions

Why are unemployment figures inaccurate?

Hidden unemployment, regional and social variations, discouraged workers, duration of unemployment, lagging data

What does a zero hour contract mean?

Workers are not guaranteed any minimum number of working hours - they are called when they are required

Why is the number of workers on zero hour contracts in the UK rising?

• employer demand for flexibility (no fixed costs)

• economic uncertainties

• growth of the service sector

• avoiding long term obligations

What does the gig economy refer to?

The zero hour contract

What does the gig economy reduce?

Reduces the official employment rate but often masks underemployment and job security

How does the gig economy affect the unemployment figures?

• workers are counted as employed even if hours are very low

• dissociated workers may not appear in statistics

• short term or casual work, increases frictional unemployment

• youth employment is effected

Define economically inactive

Those who are of working age but are neither in work nor actively seeking paid work

Define seasonal employment

Seasonal employment is the type of employment that occurs when people are out of work at certain times of the year because their jobs depend on the season or time-specific demand

Examples of seasonal unemployment?

Farming

Tourism

Retailing

Hospitality

Construction

Tuition services

Define frictional unemployment

Frictional unemployment is the short term unemployment that occurs when people are between jobs or entering the labour market for the first time

What are 6 cashews of frictional unemployment?

1. School and college leavers entering the market

2. People searching for work following a career change

3. Early retirement coming back into the labour market

4. Mothers returning to active job search

5. Incomplete information can hamper job search

6. People on short-term contracts

Why was there a large drop of the number of vacancies in the UK in 2020?

Lockdown - businesses closures, furlough scheme, reduced customer/business spending

Define structural employment

Structural unemployment occurs when there is a mismatch between the skills or location of workers and the requirements or available jobs

What are 6 causes of structural unemployment?

1. New jobs often require new skills - cost of re-training

2. Unaffordable housing (to buy or rent)

3. Employer discrimination against some groups

4. Erosion of skills from long term unemployment

5. Impact of automation in certain occupations

6. Effect of welfare system on work incentives

Define human capital

The skills, knowledge, experience and education that a person possesses, which makes them productive and valuable in the labour market

Define unemployment trap

A situation where people are discounter from taking a job because the income from employment is not much higher than unemployment benefits

Define poverty trap

A situation where low income and resources make it difficult for people to escape poverty

Define cyclical unemployment

Cyclical unemployment is the type of unemployment that occurs when there is a fall in aggregate demand in the economy, leading to a general decline in production and the demand for labour

What is the cycle of cyclical unemployment?

• lack of demand

• firms reduce employment to cut costs

• increase cyclical unemployment

If output decreases, what is this called on a diagram?

A negative output gap

Define real wage unemployment

Real wage unemployment occurs when workers are willing to work at the going wage rate but firms cannot hire them all because wages are artificially kept above the market clearing level

Definite the natural rate of unemployment

The natural rate of unemployment is the level of unemployment that exists when the economy is at full employment, meaning there is no cyclical unemployment

What type of unemployment is this?

Workers made redundant from a steel plant due to a downturn in constriction

Cyclical

What type of unemployment is this?

A graduate who spends six months searching for work after leaving university

Frictional

What type of unemployment is this?

A mother actively searching for work but unable to accept a job because of the high cost of childcare

Structural

What type of unemployment is this?

An unemployed farmer finds it difficult to find new work in high-tech sectors

Structural

What type of unemployment is this? People working in aircraft businesses loose their jobs because of a contraction in the volume of global trade

Cyclical

What type of unemployment is this?

Some jobs on the manufacture production lines are replaced by robots

Structural

What is economic inactivity?

People of working age but moving work who have not been looking for a job within the last 4 weeks

What are some reasons for economic activity?

• students remaining in full-time education or training courses

• looking after family or home including caring for elderly parents

• long term sickness which prevents people from working

• retired people including the early retired

• discouraged workers who have given up active search for work

What does underemployment occur?

When people are

• looking for an extra job or actively searching for a new job with longer hours to replace their current (main) job

• they prefer to work longer hours in their present job

• under- employment also means that workers are under-utilized in terms of their ability, formal qualifications and experience

Can underemployment be rising if unemployment is declining?

Yes

The existence of underemployment tends to make the official unemployment future look better than it truly is

Which age group were there fears around the pandemic causing a rise in economic inactivity?

People in their 50s