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

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