Chapter 27: Unemployment
Unemployment: those actively seeking work are unable to find a job
Measuring of unemployment
Unemployment rate=
(the number of people unemployed/the number of people able to work) x 100
Types of unemployment
Cyclical unemployment (aka Demand deficient Unemployment)
linked to the economic cycle
unemployment is high during a recession/downturn
People are laid off
‘Worst type of inflation’, government tries to prevent it
Structural unemployment
This happens as a result of changes in the structure of an economy
Sectoral unemployment
An undustry is in decline (coal, video rental stores)
Technological unemployment
When workers are replaced by machinery
Regional unemployment
Unemployment rate can differ by region
Seasonal unemployment
‘Unemployment caused when seasonal workers, such as those in the holiday industry are laid off because the season has ended’
Voluntary Unemployment (economically inactive)
‘Unemployment resulting from people choosing not to work’
Frictional Unemployment
‘When workers are unemployed for a short period of time when they move from one hob to the other’
Impact of high unemployment
Output
Unemployment reduces productive potential and levels of output
Lowering national income and living standards on average
If most of the unemployment is technological, output might not fall, and even increases if productivity rises
Use of Scarce resources/productive potential
Unemployed people are not contributing to production/waste of lower resources
More people employed → higher output → higher national income
Poverty
Some people may have never had any employment opportunities, so they have to live in poverty
These people can survive by growing their own food. And those in developed countries can’t afford to buy a house and family break ups
Incomes generally fall because state benefits are lower than wages
Government spending on beneits
The government allocates money to the unemployed, but there’s an opportunity cost
Tax revenue
High unemployment → less tax revenue because because more taxes kink to income and spending
Less government spending money → have to ct public services for revenue
It may borrow more money →national debt due to interest, or might have to increase tax rates
Consumer confidence
When there is hign unemployment, consumer loses confidence, making them play a less significant role in the economy. People with jobs begin to worry about their job security → become more cautious → lower spending and higher unemployemnt
Business confidence
firms have to pay unemployment benefits to laid off workers
Remaining workers may be demotivated due to fear
Fewer workers → spare capacity
Also - sales/demand falls when unemployment rises
THEREFORE firms are less likely to take risks and confidence is reduced
Society
In local areas a large proportion of the population are usually emplyed by the same business. However, if this business closes down , unemployment would increase
small businesses would struggle because of this, as customers would spend less money
Residential environments wouldn’t been taken care of
less likely to get married, can’t raise funds
Divorce is more likely as high stress levels
COuld lead to crime