Unemployment

Definition (ILO)

Being: without a job, have been actively seeking work in the past 4 weeks and are available to start work in the next two weeks.

Calculation of unemployment rate

Number unemployed

————————— X 100

Working population

How is Unemployment measured?

• Claimant count (those claiming unemployment benefits)

• Labour Force Survey/ILO measure (more specific)

Causes/types of Unemployment

1. Cyclical or demand deficient Unemployment

2. Frictional Unemployment

3. Seasonal Unemployment

4. Structural

5. Technological

Effects of Unemployment-Consumer

• Lower standard of living

• Increased health risks due to reduction in quality of diet

• Increased stress

• Social exclusion

• Loss of marketable skills

• Less employable

Effects of Unemployment-Firms (negative)

1. Fall in demand for g & s

2. Fall in output, revenue & profit

3. Knock on multiplier effect, fall in demand further down supply chain

Effects of Unemployment-Firms (positive)

1. More surplus labour

2. Fall in wages-workers willing to work for less

3. Less risk of strike action for fear of losing jobs

Effects of Unemployment-Government

• Increased expenditure on welfare benefits

• Fall in tax revenue (direct & indirect)

• Fall in profits, fall in corporation tax

• Increase need for gov borrowing

• Loss of output (Real GDP)

• Inefficient waste of precious resources

• Increased inequality and rise in relative poverty

• Cures for Unemployment-Policies

1. Monetary Policy

• problems:

  • inflationary pressure w/rising House Prices

  • BOP issues

  • Less saving & less for firms to Borrow.

2. Fiscal Policy

• problems:

  • Inflationary pressure

  • BOP issues

  • G budget deficit issues

3. Exchange-rate Policy

• Problems:

  • imports deader

  • Holidays more expensive

4. Supply-Side Policies

• problems:

  • Supply may not create its own demand

  • May take long time to have effect