6. Unemployment

What are the two measures of unemployment?

• Claimant count

• Labour force survey

What is the claimant count?

Counts the number of people claiming benefits (jobseeker’s allowance)

What is the labour force survey?

• Quarterly survey on 60,000 households

• Based on international labour organisation (ILO) definition - counts those looking for work + able to join in the next 2 weeks (have time) → includes people who have lots of money but no job unlike claimant count

What does underemployment mean?

Workers that have employment but working below the hours they would wish to

What does youth unemployment mean?

Those aged 16-24 who are economically active (not in full-time education) without employment

What does long term unemployment mean + what can it lead to?

• Long term unemployment - workers fail to find new employment after 6 months of unemployment

• Can lead to economic inactivity (people of working age not looking for work) → decreased participation rate

What is employment + what can it show?

• Employment - number of people in employment (not proportion - that is employment rate)

• Indicates strength of economy in creating new jobs

What is the government target for unemployment + diagram?

Full employment - where D_L = S_L

What is NAIRU?

Non accelerating inflation rate of unemployment (NAIRU) - level of unemployment at which inflationary pressures in the economy are stable

What are the five causes of unemployment?

• Real wage unemployment

• Cyclical unemployment

• Structural unemployment

• Seasonal unemployment

• Frictional unemployment

What does real wage unemployment mean?

Wages too high → excess supply (q2 q3)

What does cyclical unemployment mean?

Decreased demand nationally → people made redundant

What does structural unemployment mean?

Deindustrialisation / improvements in tech / geographical immobility → mismatch between the skills workers have + skills required for available jobs

What does seasonal unemployment mean?

Some workers (e.g in tourist industry) only work seasonally

What does frictional unemployment mean?

Transitional unemployment due to people moving between jobs

How is immigration a cause of unemployment?

New people enter the labour market who are unable to get jobs (may be due to mismatch of skills)

What are two advantages + two disadvantages of immigration?

Adv:

• Increased EG

• Decreased skills shortage

Dis:

• Increased unemployment

• Increased pressure on gov services

What is a cost of unemployment on workers, firms + government?

• Workers → decreased income

• Firms → produce inside the PPF

• Gov → decreased tax rev

What is the short run Phillips curve?

Inverse relationship between unemployment + inflation

What are two reasons that the SR Phillips curve exists?

• Unemployment decreases → increased AD → increase domestic inflationary pressure → inflation

• Unemployment decreases → skilled labour in short supply → increased wages → increased costs → inflation

What is a problem with the SR Phillips curve?

Goodhart’s law: people adapt → they see that inflation increases as unemployment decreases → demand higher wages → wages rise → employment costs rise → business hire less → unemployment increases

What are four ways that unemployment can be reduced?

• Decrease IR

• Decrease tax

• Increase gov spending

• Increase use of protectionist policies (e.g quotas, tariffs, regulations)

• Decrease ER → encourage exports