Unemployment:
Measures people without a job who have been actively seeking work within the last four
weeks and are available to start work within the next two weeks.
Or in simple terms
In working age
Actively seeking employment
2 ways to measure unemployment
- The labour force survey, ask a selection of people if they feel unemployed. Eg out of
work and available to work. Tend to give a higher level than claimant count.
- Claimant count, record everybody claiming benefits, generally underestimates the
level of unemployment as not everybody claims benefits.
Economically active and inactive
Economically active - people in work plus those seeking and available to work ( ie those
classified as unemployed)
Economically inactive - people of working age who have stopped an active search for paid
work in the labour market (ie have no job but are not classified as unemployed)
Underemployment
When people are not employed full time but want to bee
Counted as underemployed because
- They want to work longer hours in their current job ( at their basic rate of pay) ie they
are not working full time
- They are looking for a second job to make up full-time hours
- Actively searching for a new job with longer hours to replace their current (main) job
May apply to people working zero-hour contracts or people in the gig economy such as
deliveroo/amazon drivers.
Under-employment can be rising even though unemployment is declining.
The current rate of unemployment is at 4.6%
Cyclical unemployment - occurs during the period in the economic cycle when AD falls
beneath the amount needed to create full employment. This is because in a recession
spending and confidence in the economy has decreased and therefore demand has
decreased. It is seen as involuntary unemployment. AD shifts to the left. Keynesians
unemployment.
structural unemployment- this is when there is not a match between the demand for skills
and the supply of skills. Ie workers in declining industries may have transferable skills so can
not switch to another industry.
frictional unemployment- when people are between jobs. Short term but could be
extended due to lack of information, lack of training opportunities or too generous welfare
benefits. Can be reduced by improvements in helping people find out what job vacancies
exist.
, seasonal unemployment- regular season changes in employment/ labour demand
classical/real wage - less demand for labour due to higher wages ie higher minimum wage or
effective trade unions
Why is youth unemployment arguably a bigger problem than unemployment in older people?
Younger people usually have no experience and skills to work in certain sectors. firms that
have been forced to cut costs by laying off workers are more likely to let go of their
entry-level and lower-skilled workers at first, many of which are roles filled by younger
employees.
Demand and supply causes and cures
Demand-side = cyclical unemployment eg a decline in any of the components of AD
Supply-side = frictional, structural and seasonal
All caused by problems with the supply side of the economy.
Causes of unemployment
Demand-side Supply-side
High-interest rates Frictional- more people moving between jobs
Global recession Structural- mismatch between skills belonging
to individuals and skills needed now ie
occupational immobility
Financial crisis Technological change
Decline in GDP of major buyer of exports Geographical immobility
Real wage unemployment
Real wage (classical/disequilibrium) unemployment
Links to NMW
Classical economists argue that if wages are kept artificially high eg through the use of the
NMW, or having powerful unions,and not able to fall to the market clearing/ equilibrium level,
then the supply of labour would exceed the demand for labour and thus there would be
unemployment.
Although this assumes that the labour market is perfectly competitive( which is not) and the
benefits of lower swages do not outweigh the costs in terms of lower spending in the
economy.
The natural rate of unemployment
- This is the rate of unemployment when the labour market is in equilibrium.
- Everybody who wants a job at the current rate is able to have one
- There remains some voluntary unemployment as some people are searching for
work offering higher real wages or better conditions
- It is only caused by supply-side factors therefore it is just structural unemployment
and frictional unemployment
Measures people without a job who have been actively seeking work within the last four
weeks and are available to start work within the next two weeks.
Or in simple terms
In working age
Actively seeking employment
2 ways to measure unemployment
- The labour force survey, ask a selection of people if they feel unemployed. Eg out of
work and available to work. Tend to give a higher level than claimant count.
- Claimant count, record everybody claiming benefits, generally underestimates the
level of unemployment as not everybody claims benefits.
Economically active and inactive
Economically active - people in work plus those seeking and available to work ( ie those
classified as unemployed)
Economically inactive - people of working age who have stopped an active search for paid
work in the labour market (ie have no job but are not classified as unemployed)
Underemployment
When people are not employed full time but want to bee
Counted as underemployed because
- They want to work longer hours in their current job ( at their basic rate of pay) ie they
are not working full time
- They are looking for a second job to make up full-time hours
- Actively searching for a new job with longer hours to replace their current (main) job
May apply to people working zero-hour contracts or people in the gig economy such as
deliveroo/amazon drivers.
Under-employment can be rising even though unemployment is declining.
The current rate of unemployment is at 4.6%
Cyclical unemployment - occurs during the period in the economic cycle when AD falls
beneath the amount needed to create full employment. This is because in a recession
spending and confidence in the economy has decreased and therefore demand has
decreased. It is seen as involuntary unemployment. AD shifts to the left. Keynesians
unemployment.
structural unemployment- this is when there is not a match between the demand for skills
and the supply of skills. Ie workers in declining industries may have transferable skills so can
not switch to another industry.
frictional unemployment- when people are between jobs. Short term but could be
extended due to lack of information, lack of training opportunities or too generous welfare
benefits. Can be reduced by improvements in helping people find out what job vacancies
exist.
, seasonal unemployment- regular season changes in employment/ labour demand
classical/real wage - less demand for labour due to higher wages ie higher minimum wage or
effective trade unions
Why is youth unemployment arguably a bigger problem than unemployment in older people?
Younger people usually have no experience and skills to work in certain sectors. firms that
have been forced to cut costs by laying off workers are more likely to let go of their
entry-level and lower-skilled workers at first, many of which are roles filled by younger
employees.
Demand and supply causes and cures
Demand-side = cyclical unemployment eg a decline in any of the components of AD
Supply-side = frictional, structural and seasonal
All caused by problems with the supply side of the economy.
Causes of unemployment
Demand-side Supply-side
High-interest rates Frictional- more people moving between jobs
Global recession Structural- mismatch between skills belonging
to individuals and skills needed now ie
occupational immobility
Financial crisis Technological change
Decline in GDP of major buyer of exports Geographical immobility
Real wage unemployment
Real wage (classical/disequilibrium) unemployment
Links to NMW
Classical economists argue that if wages are kept artificially high eg through the use of the
NMW, or having powerful unions,and not able to fall to the market clearing/ equilibrium level,
then the supply of labour would exceed the demand for labour and thus there would be
unemployment.
Although this assumes that the labour market is perfectly competitive( which is not) and the
benefits of lower swages do not outweigh the costs in terms of lower spending in the
economy.
The natural rate of unemployment
- This is the rate of unemployment when the labour market is in equilibrium.
- Everybody who wants a job at the current rate is able to have one
- There remains some voluntary unemployment as some people are searching for
work offering higher real wages or better conditions
- It is only caused by supply-side factors therefore it is just structural unemployment
and frictional unemployment
