Unemployment

What is the definition of unemployment?

When someone of working age, willing and able to work is actively seeking work but can not find a job

How can unemployment be measured?

• Labour Force Survey - around 60,000 households self classify whether they are employed, unemployed or economically inactive

• Claimant count (JSA) - number of those receiving job seekers allowance

Definition of full employment

There are enough unfilled vacancies for all unemployed to take work

Define long term unemployment

Unemployment for longer than 6 months

Define mass unemployment

When one tenth of the labour force is out of work

What is underemployment?

When:

• People are looking for extra hours of work

• People are over-qualified for a particular job so are being under-utilised

What are the types of unemployment?

• Cyclical

• Frictional

• Structural 

• Seasonal

What is cyclical unemployment and how is it caused?

Unemployment caused by weak aggregate demand in the economy reducing the demand for labour. Reduced aggregate demand causes a contraction in national output and businesses may make workers redundant

When can cyclical unemployment rise the most

Can rise dangerously in recession

What is frictional unemployment and give examples?

Unemployment when workers are seeking a better job or switching between jobs - seen as voluntary

• School and college leavers

• Searching for work between careers

• Early retired coming back to labour market

• Mothers returning to active job search

What is structural unemployment

Unemployment which is caused by a change in the structure of the economy e.g. de-industrialisation causing a lack of skills suitable for the jobs available

How can changing structure of an economy cause unemployment?

• Occupational/geographical immobility

• Unaffordable housing

• Employer discrimination

• Erosion of skills due to long term unemployment

What is the unemployment trap?

When the benefits of the tax and welfare benefits system makes people prefer to stay unemployed

• Childcare costs are also a barrier

What is seasonal unemployment?

Seasonal workers are out of work due to the time of year

• Farming

• Tourism

• Retail

• Entertainment

• Hospitality

What is the natural rate of employment?

The rate of unemployment when there is full employment in an economy

Explain classical unemployment and what it is also known as.

Also known as real wage unemployment. It is when increased wage rates mean that workers lose jobs. This is because costs are too high for businesses as the wages are too high for the productivity of the workers.

• Existence of trade unions

• Existence of minimum wage

• Monopsony employers

What is economic inactivity?

Section of working age population which is not in employment and is not actively seeking a paid job

• Students in full time education

• Long-term sickness

• Discouraged workers who have given up looking for a job

What has been the current trend in economically inactive rate

2009 (financial crisis) - 23.5%

2017 - 21.5%

What are the costs of unemployment?

• Slower long-run trend rate of economic growth

• Risk of deflation due to reduced AD

• Erosion of human capital/people’s skills

• Fiscal costs to gov as tax revenues decrease and welfare spending increases

• Income and wealth inequality

What are policies to reduce unemployment?

• Macroeconomic policies

• Cutting the cost of employing extra workers

• Competitiveness policies

• Reducing occupational and geographical immobility of labour

• Stimulate stronger work incentives

How can macroeconomic policies reduce unemployment?

• Lower interest rates & improving credit supply to businesses = lower borrowing costs and more investment for businesses = higher demand for labour

• Depreciation of exchange rate (could increase export volumes)

• Infrastructure projects

What is the UK unemployment rate?

Nov 2025 - 5%