2.1.3 Employment and unemployment

Measures of unemployment

Claimant count and International Labour organisation and UK labour force survey

What is the claimant count

Counts the number of people claiming unemployment related benefits such as job seekers’s allowance (JSA). Have to prove they are actively looking for work. Not every unemployed person however is eligible for or bothers claiming JSA. Underestimated level of unemployment

What is the International Labour Organisation and the UK labour force survey

The LFS is taken on by the ILO. Directly asks people if they have been out of work for 4 weeks, able and willing to start working within 2 weeks and workers should be available for 1 hour per week. Method gives a higher unemployment figure than the claimant count.

The distinction between unemployment and under-employment

Unemployed are those able and willing to work but are not employed. Underemployed are those who have a job but their labour is not used to its full productive potential

The significance of changes in the rates of inactivity

The economically inactive are those who are not actively looking for jobs. These could include carers for the elderly, disabled or children, or those who have retired. If the number of the economically inactive increases, the size of the labour force may decrease.

The causes of unemployment: structural

This occurs with a long term decline in demand for the goods and services in an industry which costs jobs. If workers do not have the transferable skills to move to another industry, they are likely to remain unemployed in the long run.

The causes of unemployment: frictional

This is the time between leaving a job and looking for another job.

The causes of unemployment: seasonal

This occurs during certain points in the year, usually around summer and winter. During the summer, more people will be employed in the tourist industry, when demand increases.

The causes of unemployment: demand deficiency and cyclical

This is caused by a lack of demand for goods and services, and it usually occurs during periods of economic decline or recessions. Firms could force to close of make workers redundant as they need to reduce their costs

The causes of unemployment: real wage inflexibility

Wages above the market equilibrium may cause unemployment. Classical economists argue that by letting wages fall to the equilibrium level, there would be no unemployment. However, cutting wages during times of weak consumer spending would cause further falls in consumer spending, and there would be even lower economic growth.

Significance of migration and skills for employment

Migrants are usually of working age and many are looking for a job, so the supply of labour at all wage rates tends to increase with more migration. Migrants tend to bring high quality skills to the domestic workforce, which can increase productivity and increase the skillset of the labour market.

Significance of migration and skills for unemployment

Migrant labour affects the wages of the lowest paid in the domestic labour market, by bringing them down. This is because migrants are usually from economies with lower average wages than the UK NMW. However, this impact is only small.

Effects of unemployment on consumers

If consumers are unemployed, they have less disposable income and their standard of living may fall as a result. There are also psychological consequences of losing a job, which could affect the mental health of workers.

Effects of unemployment on firms

With a higher rate of unemployment, firms have a larger supply of labour to employ from. This causes wages to fall, which would help firms reduce their costs.

Effects of unemployment on workers

With unemployment, there is a waste of workers’ resources. They could also lose their existing skills if they are not fully utilised. Those in jobs are likely to see a fall in their wages as supply of labour

Effects of unemployment on the government

If the unemployment rate increases, the government may have to spend more on JSA, which incurs an opportunity cost because the money could have been invested elsewhere. The government would also receive less revenue from income tax, and from indirect taxes on expenditure, since the unemployed have less disposable income to spend

Effects of unemployment on society

There is an opportunity cost to society, since workers could have produced goods and services if they were employed. There could be negative externalities in the form of crime and vandalism if unemployment rate increases