Employment and unemployment (4.3)

What is the “at risk of poverty” threshold?

60% of the median equivalised disposable income.

The Live register and Labour Force Survey (LFS)

These are two main methods for measuring unemployment in Ireland.

Reasons a government wants high levels of employment.

1. higher taxes for government (current revenue from income tax)

2. Less spending on social services (current expenditure down)

3. To encourage career progression and earning capacity

4. To make the economy more attractive to FDI (more diverse skilled labour force.

5. To promote a culture/ ecosystem of indigenous enterprise

Full Employment

Exists when everybody seeking work is employed at existing wage rates. Usually happens when a sustained period of economic growth occurs. In Ireland full employment is when the rate of unemployment is at 4%.

Unemployment

Everybody who is seeking work at existing wage rates but unable to find work.

Frictional unemployment

People who are between jobs and are looking for work.

Causes of frictional Unemployment.

1. Change (or friction) in particular markets.

2. Occurs when people’s preferences or tastes change and thus alter demand for products, leading to a knock-on and reduced demand for labour.

3. usually short term

Seasonal Unemployment.

Occurs when some members of the workforce are in employment for only certain parts of the year. Occurs as the demand for some labour moves in line with the seasonality of the work.

Examples of season Unemployment.

1. Fruit picking or vegetable picking industry

2. Life guards

3. Hospitality industry

4. Other seasonal dependent industry i.e. Christmas markets

Cyclical Unemployment

A result of a change in demand for goods during an economic recession. Arises due to fluctuations in the business cycle (Keynesian unemployment)

Structural unemployment

Those who become unemployed due to technical progress or competition. This can occur when an industry goes into decline because of changing demand for the industry’s products. Examples include shipbuilding or car manufacturing firm.

Institutional unemployment.

Arises because there are obstacles preventing the mobility of labour. Examples include lack of housing in another region or the refusal of foreign governments to grant work permits.

Causes of unemployment.

1. Economic recession

2. Relocation of industry

3. Increased cost in exports

4. A systemic crisis

5. Uncertainty about the future

6. Structural unemployment

Economic recession

A result in a reduction in aggregate demand.

As individual businesses experience lower sales, they will need to reduce their costs.

This May lead to reduced hours, job losses or even shutdown, which results in all staff members being laid off.

Relocation of industry

When businesses want to reduce their costs and therefore move to lower-cost locations.

Increased cost in Exports

A rise in the value of the euro against other non-euro currencies could result in a reduction in demand for Irish exports. If sales fall for these businesses, it can lead to job losses in export industries.

A systemic crisis

A crisis that threatens the entire country’s economic system such as the banking crisis in 2008, which led to a major reduction in the availability of credit for businesses and a decline in consumer confidence.

The impacts of unemployment on the economy.

1. A decrease in consumer demand

2. An increase in government current expenditure on social welfare

3. A decline in tax receipts

4. A greater taxation burden on the employed

5. An increase in social problems

6. A lower demand for wage increases

7. Reduced demand for imports

How can a government encourage employment?

1. Build an entrepreneurial climate by providing supports for individuals and firms to become more entrepreneurial.

2. Lower tax: By lowering both direct and indirect taxation, individuals and firms would prosper.

3. Maintain current measure by keeping supports that are already in place.

4. Subsidise labour by subsidising wages or providing tax breaks for employees.

5. Reduce running costs for business by reducing costs of things like electricity, water, etc.

6. Encourage investment by giving grants for setting up a business

2 ways to measure unemployment

1. Labour force survey

2. The Live register

Why is the Labour Force Survey more accurate than the live register?

1. Inclusion of part time and casual workers

2. Consideration of shadow economy workers

3. Inclusion of non-job seekers and PRSI credit claims

How could the government reduce unemployment

1. Decrease minimum wage: This would make taking on workers more desirable for a firm

2. Decrease social welfare payment incentivising work.

3. Decrease Indirect takes as they decrease incentivisation to work.

4. Promote ‘buying Irish’ reducing leakages from an economy.

Implications of Unemployment on an economy

1. Decreased Government Revenue

2. Growth of the shadow economy and increased crime

3. Reduced inflation

4. Decline in foreign direct investment

Implications of unemployment on an individual

1. Decline in Standard of Living

2. Impact on mental health

3. Emigration (Brain Drain)

4. Entrepreneurial opportunities.

Brain Drain

Essentially it is substantial immigration leading to less qualified workers in an economy.

Advantages of High Unemployment for Firms wishing to Expand

1. Easier to attract staff as firms will have a larger pool of candidates to select from.

2. Lower pay role as it takes less incentive to hire workers.

Derived demand for labour

Labour that is demanded not for its own sake but rather its contribution to the production of goods and services.

Youth Unemployment

When young people aged 15-24 are looking for jobs but cannot find them.