CHAPTER 11
UNEMPLOYMENT AND THE PHILLIPS CURVE
Unemployment:
Unemployment rate: The number of unemployed persons expressed as a percentage of the total number
of people who are willing and able to work.
The unemployment pool:
The level or rate of unemployment is a stock concept.
There are continuous flows in and out of unemployment as people enter and leave the unemployment pool.
Measuring unemployment:
Strict definition: unemployed persons are those persons who, being 15 years and older, (a) are not in
paid employment or self-employment, (b) were available for paid employment or self-employment during
the seven days preceding the interview and (c) took specific steps during the four weeks preceding the
interview to find paid employment or self-employment.
Expanded definition: unemployed persons are those persons who, being 15 years and older, (a) are not
in paid employment or self-employment, (b) were available for paid employment or self- employment during
the seven days preceding the interview and
The costs of unemployment:
To the individual: a loss of income, shock and frustration.
Loss to society: If labour is not used when it is available it is lost forever. Also gives rise to crime as well
as demonstrations and riots.
Types of unemployment:
Frictional unemployment: Arises because it takes time to find a job or to move from one job to
another.
Seasonal unemployment: Arises because certain occupations require workers only for part of
each year.
Cyclical (or demand-deficiency) unemployment occurs when a slump or recession in the
economy (as a result of a temporary lack of demand) gives rise to unemployment.
Business cycle: periods of rapid increase in aggregate demand (booms) followed by periods of
slower increase or decline. –sales drop and some workers lose their jobs because there is
insufficient demand for the goods and services they produce.
Structural unemployment: usually confined to certain industries, sectors or categories of
workers. Occurs when there is a mismatch between workers qualifications and job requirements
– or when jobs disappear because of structural changes in the economy:
Eg:
o Certain workers lack the necessary education, training or skills required
o Changes in production methods or techniques (technologically unemployed)
o Changing consumer preferences
o Foreign competition
o Structural decline in certain industries: closure of gold mines and the decline in gold
production
o Discrimination
Policies to reduce unemployment:
Unemployment rate originates from the supply side of the labour market and the demand side.
Supply side: rapid population growth can be a significant cause of unemployment –
steps to limit population growth can be regarded as a part of the strategy to reduce
unemployment. (long-term strategy)
Stricter immigration control can also be regarded as an element of a policy strategy to reduce
unemployment.
Policies to improve quality of labour through education and training.
UNEMPLOYMENT AND THE PHILLIPS CURVE
Unemployment:
Unemployment rate: The number of unemployed persons expressed as a percentage of the total number
of people who are willing and able to work.
The unemployment pool:
The level or rate of unemployment is a stock concept.
There are continuous flows in and out of unemployment as people enter and leave the unemployment pool.
Measuring unemployment:
Strict definition: unemployed persons are those persons who, being 15 years and older, (a) are not in
paid employment or self-employment, (b) were available for paid employment or self-employment during
the seven days preceding the interview and (c) took specific steps during the four weeks preceding the
interview to find paid employment or self-employment.
Expanded definition: unemployed persons are those persons who, being 15 years and older, (a) are not
in paid employment or self-employment, (b) were available for paid employment or self- employment during
the seven days preceding the interview and
The costs of unemployment:
To the individual: a loss of income, shock and frustration.
Loss to society: If labour is not used when it is available it is lost forever. Also gives rise to crime as well
as demonstrations and riots.
Types of unemployment:
Frictional unemployment: Arises because it takes time to find a job or to move from one job to
another.
Seasonal unemployment: Arises because certain occupations require workers only for part of
each year.
Cyclical (or demand-deficiency) unemployment occurs when a slump or recession in the
economy (as a result of a temporary lack of demand) gives rise to unemployment.
Business cycle: periods of rapid increase in aggregate demand (booms) followed by periods of
slower increase or decline. –sales drop and some workers lose their jobs because there is
insufficient demand for the goods and services they produce.
Structural unemployment: usually confined to certain industries, sectors or categories of
workers. Occurs when there is a mismatch between workers qualifications and job requirements
– or when jobs disappear because of structural changes in the economy:
Eg:
o Certain workers lack the necessary education, training or skills required
o Changes in production methods or techniques (technologically unemployed)
o Changing consumer preferences
o Foreign competition
o Structural decline in certain industries: closure of gold mines and the decline in gold
production
o Discrimination
Policies to reduce unemployment:
Unemployment rate originates from the supply side of the labour market and the demand side.
Supply side: rapid population growth can be a significant cause of unemployment –
steps to limit population growth can be regarded as a part of the strategy to reduce
unemployment. (long-term strategy)
Stricter immigration control can also be regarded as an element of a policy strategy to reduce
unemployment.
Policies to improve quality of labour through education and training.
