5. Unemployment

Define unemployment

An adult civilian who is out of a job but is actively looking for work.

What is the criteria for being counted as unemployed?

- Without a job, have been actively seeking work in the past 4 weeks and are available to start work in the next 2 weeks.

- Out of work, have found a job and are waiting to start it in the next 2 weeks.

Define inactive.

A person of working age who is not trying to get a job and therefore does not count as part of the labour force.

Define labour force.

The total amount of all active population, both unemployed and employed.

Define unemployment rate.

The number of unemployed people as a percentage of the labour force.

How do we calculate the unemployment rate?

Number of people employed

/ labour force x 100

How can unemployment and employment levels rise at the same time?

People who aren't in the labour force may start seeking work as others become employed.

Give example of inactive people.

- Looking after family

- Short term sickness

- Discouraged workers

- Long term sickness

- Students

- Retired

What does it mean to be active?

Either unemployed and seeking a job or currently in a job.

What are the governments objectives related to employment?

- Create more jobs

- Increase the activity rates in the country

- Reduce unemployment

- Reduce underemployment

What is underemployment?

When workers want to work more.

What are the four main causes of unemployment?

1. Seasonal

2. Structural

3. Frictional

4. Cyclical

What is seasonal unemployment?

When workers are only employed at certain times of the year due to seasonal changes in labour demand. e.g. Christmas

What is structural unemployment?

When long term changes to the economy mean that skills don't match job opportunities due to the rise and fall of different industries.

What is structural unemployment linked to?

Labour immobility.

What is labour immobility?

The inability of labour to switch jobs, usually due to skill gaps.

What is frictional unemployment? Give an example.

When people move between jobs. e.g. people who have just left a job or people getting jobs for the first time.

What is cyclical unemployment?

Unemployment caused by the business cycle e.g. weakness of aggregate demand and booms.

What labour market problem may cause unemployment?

Real wage unemployment

Explain real wage unemployment.

Wages may be too high for supply and demand conditions. e.g. minimum wage or higher wages for unions may cause less people to be employed.

Explain the link between migration and unemployment.

Migraters may have complementary skills to native workers which can increase supply of labour - increasing GDP.

However migrants may substitute domestic workers, forcing down the equilibrium wage.

Which two ways can we measure unemployment?

1. Claimant count

2. Labour force survey

What is the claimant count?

The number of unemployed people claiming the Jobseekers' Allowance benefit.

What can the Jobseekers' Allowance prove?

That unemployed people are actively looking for work.

Who does the claimant count exclude?

Housewives and those on training schemes

Why is the claimant count not always accurate?

Not everyone unemployed will bother to claim allowance, some are deterred as they can't prove they're looking for work, especially part time workers. Therefore it may underestimate unemployment levels.

What is the labour force survey?

An internationally agreed measure of unemployment where data is collected via a survey every 3 months.

Who carries out the labour force survey?

The International Labour Organisation (ILO)

What is the criteria for unemployment on the labour force survey?

1. Out of work for 4 weeks.

2. Able to start in next 2 weeks.

3. Only need to be available for work 1 hour per week.

Why may the ILO unemployment be accurate?

Surveys roughly 40,000 households and considers people looking for part time work.

Why may the ILO unemployment be inaccurate?

It may over-estimate true unemployment by including people only looking for a few hours of part time work per week.

It can be subject to sampling error too.

What are four main social costs of unemployment?

1. Loss of income

2. Fall in real living standards

3. Increased health risks e.g. stress, poor diet, social exclusion

4. Loss of marketable skills and motivation e.g. more time unemployed lowers chances of getting a job, may become unattractive to potential employers.