11.2 Employment and Unemployment

What is the Claimant Count?

It counts the number of people claiming unemployment-related benefits like Job Seeker’s Allowance (JSA), who must prove they are actively seeking work

What are the drawbacks of the Claimant Count

It underestimates unemployment since not all unemployed are eligible for or claim benefits

What is the Labour Force Survey (LFS)?

A survey used by the ILO that asks people if they’ve been out of work for 4+ weeks, are available to start in 2 weeks, and can work at least 1 hour/week

How does the LFS differ from the Claimant Count?

The LFS generally shows a higher unemployment figure because it includes those who are not claiming benefits

What is structural unemployment

Unemployment caused by a mismatch between the skills that workers in the economy can offer and the skills demanded of worker by employers

What is frictional unemployment

Temporary unemployment when people are between jobs or just entering the workforce

What is seasonal unemployment

Unemployment that occurs at certain time of the year

What is cyclical unemployment

Unemployment caused by a fall in aggregate demand, often during economic downturns or recessions

What is real wage unemployment

When wages are above market equilibrium, causing labour supply to exceed demand

What is voluntary unemployment

When someone chooses not to work at current wage levels

What is involuntary unemployment

When people willing and able to work at current wages cannot find employment - often due to cyclical factors

How does unemployment affect consumers?

Reduces disposable income, lowers living standards, and can cause psychological stress

How does unemployment affect firms?

Increases labour supply (lower wages), but reduces consumer spending and may require retraining workers.

How does unemployment affect workers?

Leads to a waste of labour resources and skill loss due to underutilisation.

How does unemployment affect the government?

Increases spending on JSA, reduces tax revenues, and carries an opportunity cost.

What is the natural rate of unemployment

The unemployment level when labour market is in equilibirum, with no cyclical unemployment

What causes the natural rate of unemployment

Supply-side factors - frictional and structural unemployment

What is NAIRU

The Non-Accelerating Inflation Rate of Unemployment - when inflation is stable

Why is the natural rate also called full employment

Because there’s no demand-deficient unemployment - only unavoidable types like frictional or structural