3.3b Macroeconomic Objectives - Unemployment

Definition of workforce/labour force

• those who are legal, capable, and willing to work

• not the same as working-age population, as housewives/students are not actively seeking jobs => unwilling to work

• calculated by

  • workforce = # of employment + # of unemployment

Factors affecting the size of workforce

• school-leaving age

• retirement age

• number of net migration (# of immigration- # of emigration)

• income tax rate

• amount of unemployment benefits

definition of unemployment

those who are legal, capable, and willing to work but fail to find a job

unemployment rate = (# of unemployment ÷ workforce) x 100

Difficulties in measuring unemployment

Hidden unemployment

• Discouraged workers - those who have been unemployed for a long time and are no longer finding a job —> excluded from calculation of unemployment (only those actively seeking a job in the past 4 weeks are included)

• ∴ there are people who are jobless, but not included in the unemployment figure

Underemployment

• part timers: classified as employed as they have a job, but want to work as full time, so their income is not as high as they want

• over-qualification: under-utilisation of an employed population. technically employed, but their skills and abilities are not fully utilised

Disparities

• regional: rural areas have higher unemployment rates than urban areas (varies among regions in a country)

• ethnic: ethnic minorities usually suffer from higher unemployment rates than the national average/locals (i.e. Southeast Asians in HK)

• age: younger populations suffer from higher unemployment rates (2017, US - 9% youth unemployment rate, compared to national figure 4.2%

• gender: female unemployment rate is usually higher in industrialised economies due to education levels and employer discrimination. (2017, India - 4.2% female unemployment rate, compared to national figure 3.5%). mainly for primary sector

types of unemployment

• cyclical unemployment (related to business cycle)

• natural unemployment (unrelated to business cycle)

  • structural unemployment (mis-matched skills)

  • frictional unemployment (between jobs)

  • seasonal unemployment (demand for job changes due to weather/climate)

cyclical unemployment

• occurs when there is economic recession (less economic growth)

• in a recession, househols have lower disposable income + lower consumer confidence —> consumption decreases —> firms have less revenue and profit to hire labours

• households’ demand for G&S fall —> fall in consumption —> fall in AD

• firms’ demand for labours decrease —> rise in unemployment

natural unemployment

• lowest level of unemployment an economy may reach (unemployment # when the economy is producing at the potential output level)

• implies that even though the labour market is at equilibrium and there is a boom, and there is no cyclical unemployment, there are always still jobless people

structural unemployment

• mismatches between skills and knowledge possessed by labours and the skills required by the job vacancies

• caused by a change in the type of labour demanded

causes

• occupational immobility of labours: labourers are unable to switch industries when there are industrial changes or technological advancement, caused by lacking skills & knowledge

• industrial changes: the entire industry declines, causes a permanent fall in demand for these particular skills. E.g. de-industrilization of Hong Kong in the late 1980s - demand for manufacturing labours decreased

• increasing use of technology: capitals goods and labourers may be substituted, labours may be replaced, and need to learn new skills

• geographical immobility of labours: unable to move from one region to another to seek a job, caused by:

  • imperfect information on job vacancies

  • high money costs of moving to another region

  • high regional difference in living costs

  • social/family ties

• wage rigidities/inflexibilities: real wage level is higher than the equilibrium wage level causing Qd<Qs of labour, caused by:

  • minimum wage set by government

  • power of labour union (can ask for higher wages)

  • unexpired employment contract

frictional unemployment

• unemployment period of the original and new job.

• always present as it takes time to find a job

• professionals don’t really lose their jobs

• lots of job opportunities for non-professionals

seasonal unemployment

• caused by regular and periodical changes in demand for certain goods and services, usually due to weather or climate

• same every year —> workers know how to survive —> not significant stress

• e.g. life guards, skiing coaches

economic costs of unemployment

• economic recession

• worsens the government’s budget

  • reduction in tax revenue

  • increase in unemployment benefits expenditure

• widen income inequality

personal costs of unemployment

• lower standards of living

• deskills of labour

• increase in stress levels & family breakdown

social costs of unemployment

• increase in criminal rates

• social disintegration