Microeconomics Topic 1: The Economic Problem 2.1.3 Unit content Students should be able to: Explain how unemployment is measured (the claimant count, the International Labour Organisation (ILO) and the UK Labour Force Survey) Distinguish between unemployment & under-employment Evaluate the significance of changes in the rate of employment, unemployment and inactivity Analyze five causes of unemployment Assess the significance of migration and skills Evaluate the effects of unemployment on consumers, firms, workers, the government and society

Definition - what is unemployment? Unemployment refers to the _______________ __________________________________________ However there are different ways of measuring this. Why?

Level versus rate of unemployment The level of unemployment is the number of people not in work, while the rate of unemployment is the % of people not in work relative to the size of the workforce. The workforce is people who are at work and those of working age who are willing and able to work (i.e. the employed and the unemployed).

Why does unemployment change? People may:

The Claimant Count measure of unemployment Microeconomics Topic 1: The Economic Problem The Claimant Count measure of unemployment The Claimant Count measure is people who are eligible to claim Job Seeker’s Allowance. JSA was introduced in 1996 (previously unemployment benefit). One problem with this measure is that it misses out people who are interested in seeking work and have looked but they don’t meet all the criteria for claiming.

Key exam points about the Claimant Count measure Microeconomics Topic 1: The Economic Problem Key exam points about the Claimant Count measure It is the number of people claiming JSA (2 marks) Age range is 18 to retirement (1 mark) There is a savings cap (1 mark) Must be able to prove they are looking for work (1) Have to register at an unemployment office (1) Ignores people who are eligible but don’t claim Ignores people (often women) who aren’t eligible because their partner works or because of their financial position Can’t claim if resigned from job in the last 6 months or if you have refused 3 job offers Must have paid a certain amount of National Contributions

The Labour Force Survey: ILO measure Microeconomics Topic 1: The Economic Problem The Labour Force Survey: ILO measure The International Labour Organisation ILO measure refers to the number of jobless people who have looked for work in the last month and are able to start work in the next two weeks. In the UK it is collected by the Labour Force Survey. On average the Iabour force survey exceeds the claimant count by about 800,000 since it includes people available for work who may not claim benefits. It is an international measure and so can be used to compare countries.

Key exam points about the ILO Microeconomics Topic 1: The Economic Problem Key exam points about the ILO It refers to people who have been out of work in the last four weeks (1 mark) They must be ready to work in two weeks (1 mark) and actively looking for work (1 mark) It is measured by a questionnaire/interview (1) called the Labour Force Survey (1 mark) carried out quarterly (1 mark) Only a sample of people are surveyed (1 mark) Internationally recognised measure (1 mark) It is people of working age, aged 16 – 65 (1 mark) May 2014

Why was the claimant count higher than ILO in 1992?

Microeconomics Topic 1: The Economic Problem Current figures The UK unemployment rate was ____% (August – October 2015). Usually unemployment refers to ILO The number of unemployed people fell to reach _____ million. The number of people claiming Jobseeker's Allowance in May 2015 was ______ (ONS).

Highest figures for unemployment It is very hard to have accurate figures for unemployment over time since measurements have changed significantly. In 1921 unemployment was recorded as 23% but the numbers were low. In 2011 unemployment was 8.1% - the highest for 17 years In 1994 it was 9.7%

Unemployment by country: France, Germany, Spain, UK, USA Microeconomics Topic 1: The Economic Problem Unemployment by country: France, Germany, Spain, UK, USA Country Unemployment 2015 Unemployment 2014 4.5% 5.1% 5.0% 6.3% 5.2% 6.4% 10.6% 10.2% 21.18% 24.5% http://www.tradingeconomics.com/spain/indicators

Frictional unemployment Seasonal unemployment Structural unemployment Research the following types of unemployment: how could they be reduced? Frictional unemployment Seasonal unemployment Structural unemployment Demand deficiency and cyclical unemployment Real wage inflexibility

Loss of ‘human capital’ Long-term: Why is long term unemployment generally considered a ‘bad’ thing for society? Costs Social stigma Loss of ‘human capital’ Long-term:

Unemployment and the ‘classical’ view The classical view: if unemployed people would accept lower wages they could find work. Why? People who believe that this is the only cause of unemployment think that out-of-benefits should be ____, trade union power _______ and the minimum wage ________ so people will be ________ to work.

Unemployment and the ‘Keynesian’ view The Keynesian view is that people are unemployed due to lack of (aggregate) demand in the economy. Low demand means firms _____________________ __________________________________________ If wages were lowered then ____________________ People may worry about losing their job and so try and save money (hence less demand). Other factors may lower demand such as low business confidence or an increase in the currency (imports _______ and exports ________________).

the ‘Keynesian’ view continued Structural unemployment is also not due to high wages. The Keynesian view is that the government should implement policies to increase demand.

What is the link between employment and (economic) growth? Why is employment linked with rapid growth? What happens as technology increases?

What is underemployment? Underemployment occurs when one does not have a job that is full-time or that reflects his or her training and financial needs. It is not the same as unemployment. The formula for underemployment rate is:

What about “not working”? It is important to note that underemployed is different from not working. Give examples

What is the significance of migration for employment and unemployment? Microeconomics Topic 1: The Economic Problem What is the significance of migration for employment and unemployment? The impacts of immigration on the labour market critically depend on the skills of migrants, the skills of existing workers, and the characteristics of the host economy. UK research suggests that immigration has a small impact on average wages of existing workers but more significant effects along the wage distribution: low-wage workers ______ while medium and high-paid workers ________ http://www.migrationobservatory.ox.ac.uk/briefings/labour-market-effects-immigration

What is the significance of migration for employment and unemployment? Microeconomics Topic 1: The Economic Problem What is the significance of migration for employment and unemployment? The wage effects of immigration are likely to be greatest for resident workers who are migrants themselves. Research does not find a significant impact of overall immigration on unemployment in the UK, but the evidence suggests that immigration from outside the EU could have a _________ impact on the employment of UK-born workers, especially during an economic ___________ http://www.migrationobservatory.ox.ac.uk/briefings/labour-market-effects-immigration

What is the significance of migration for employment and unemployment? Microeconomics Topic 1: The Economic Problem What is the significance of migration for employment and unemployment? For both wages and employment, short run effects of immigration differ from long run effects: any declines in the wages and employment of UK-born workers in the short run can be offset by __________ wages and employment in the long run.

Microeconomics Topic 1: The Economic Problem The effects of unemployment on consumers, firms, workers, the government and society Summarize the effects of unemployment on consumers, firms, workers, the government and society