Unemployment – what does this show?

Definition Unemployment is defined as the number of people (of working age) who are willing and available to work at current wage rates, but not currently employed Unemployed people have low income – lack of disposable income – leading to lack of demand During times of high unemployment, people are concerned about their future – they spend less, save more, take less risks – leading to lack of demand

How is it measured? The Office for National Statistics (ONS) publishes two unemployment rate measures. Claimant count: includes all those who are unemployed and actually claiming benefit in the form of Jobseekers Allowance No longer used as had imperfections (changed in 1997) Labour Force Survey a survey of the employment circumstances of the UK population. It is the largest household survey in the UK and provides the official measures of employment and unemployment

What causes high unemployment? Demand deficient (or cyclical) unemployment Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services. (not enough demand to employ all those who want to work) Cyclical as linked to trade cycle Booming Economy= lots of demand so employ large number of workers Economy slow-down = demand falls, so workers made redundant Can be a negative multiplier effect

What causes high unemployment? Real wage (classical) unemployment a form of dis-equilibrium unemployment that occurs when real wages for jobs are forced above the market clearing level, traditionally through trade unions, more recently through introduction of minimum wage

What causes high unemployment? Structural unemployment when there is a long run decline in demand in a particular industry No longer demand in a product People’s tastes change Changes in technology E.g. Shipbuilding, mining

Changing Structure

What causes high unemployment? Frictional unemployment due to people moving between jobs Can take time to find a new job = creates unemployment while they look Consider Occupational immobility Geographical immobility

What causes high unemployment? Hidden unemployment Whatever the published figures for unemployment, there are bound to be people who are interested in taking paid work but who, for one reason or another, are not classified as unemployed.  Progress Arrow

Costs of unemployment? Loss of output to the economy - the unemployed could be producing goods and services and if they aren't, then GDP is lower than it could be. Loss of tax revenue - unemployed people aren't earning and they therefore aren't paying tax. The government has lost out.

Costs of unemployment? Increase in government expenditure - the government has to pay out benefits to support the unemployed. Along with the loss of tax this is a 'double whammy'. Loss of profits - with higher employment firms are likely to do better and make better profits. If they make less profit because of unemployment, they may have less funds to invest.

Task Exam style questions pg 100