T H E U K E C O N O M Y ( M A C R O E C O N O M I C S )T O P I C 2

UNEMPLOYMENT

WHO IS UNEMPLOYED?

• A person who is able, available and willing to work but cannot find a job.

THE CLAIMANT COUNT

• Published each month and shows the number of people able to claim the Job Seekers Allowance (JSA).

• Unemployment is expressed as a percentage of the working population. This is employees in work, the self-employed and the unemployed.

CRITICISM OF THE CLAIMANT COUNT

• Frequent changes in the method of calculation.

• Some unemployed people are not included because they don’t register for unemployment benefit.

• Some people work in the “black economy” and fraudulently claim benefit.

• Strict JSA criteria prevents some unemployed people from claiming.

• The change from unemployment benefit payable for 12 months to JSA payable for only 6 months has reduced the number of claimants.

SEASONAL ADJUSTMENTS

• The claimant count is normally seasonally adjusted.

• This removes the effects of the predictable seasonal fluctuations in unemployment. E.g. builders in the winter

THE LABOUR FORCE SURVEY

• Since 1998 this method of measuring unemployment has also been published.

• The LFS is similar to the method used by other countries.

• People in employment, unemployed and economically inactive make up the total household population aged 16+.

• The LFS samples 150,000 people and counts as unemployed those who:

• Were available to start work in the next two weeks, and• Had actively seeked work in the last four weeks, or• Had found a job and were waiting to start.

• The numbers from LFS are higher than the claimant count but deemed to be more accurate.

• The economically inactive are those people who are not in work, but who do not satisfy all the criteria for Labour Force Survey unemployment

WHY MEASURE UNEMPLOYMENT?

• Unemployment is a key indicator of the performance of an economy.

• It is also a major social problem and the government need to know the scale of the problem before trying to fix it.

• They also need to know how long they have been unemployed, what age group they are, the regions they are in and the industries that are affected.

• This will help policies makers put into place the right policies to help improve the situation.

TYPES OF UNEMPLOYMENTT H E U K E C O N O M Y ( M A C R O E C O N O M I C S )

T O P I C 2

TYPES AND CAUSES

1. Cyclical

This type of unemployment is associated with a recession in the economy. Aggregate demand has fallen for products.

TYPES AND CAUSES

2. Structural

This type is associated with changes in the structure of an industry.

• New Technology. If an industry is moving to more capital intensive productive it may pay off some staff. However, in the long term new technology creates jobs.

• Falling demand. If there is long-term decline in demand for a product firms will need to lay off staff.

TYPES AND CAUSES

3. Frictional

• This is when there are barriers to the free movement of the unemployed into job vacancies. Caused by:

• A lack of knowledge about job vacancies• Occupational immobility• Geographical immobility• Disincentives to work – worker might think that

claiming benefits might work out financial better than working.

TYPES AND CAUSES

4. Seasonal

This occurs in industries such as agriculture, tourism and building where the number of people employed fluctuates depending on the time of year.

FULL EMPLOYMENT

• This does not mean that everyone who is looking for a job has one. There is no one definition of full employment.

• One early definition was that full employment would be when the number of unfilled jobs equalled the number of the unemployed.

• Another was that full employment would be achieved when the unemployment rate was 3%.

• Today economists and politicians talk more about a concept than a figure. They say that full employment is when unemployment equals the natural rate of unemployment.

FULL EMPLOYMENT

• The natural rate of unemployment is seen as the level of unemployment below which there would be a rise in inflation.

• Unemployment below this rate would lead to labour shortages in some sectors but high demand and so would increase the pressure on wages and prices.

• The natural rate is sometimes called NAIRU – The NON-ACCELERATING INFLATION RATE OF UNEMPLOYMENT.

U N I T 2T O P I C 2

EFFECTS OF UNEMPLOYMENT

FOR THE INDIVIDUAL

• Economic Effects• Reduced income• Reduced standard of living• Reduced efficiency

• Social Effects• Reduced status• Increased health problems

FOR BUSINESSES

• Negative• Fall in demand for products• Knock-on effect on suppliers – MULTIPLIER EFFECT

• Positive• Bigger pool of labour available• Less pressure to pay higher wages• Less risk of industrial actioN

FOR THE ECONOMY

• Economic Costs• Lost output – real GDP will fall – economy will be

operating within its PPC.• Multiplier effect of reduced demand. Reduced spending

leads to reduced jobs.• Reduced taxation revenue.• Increased burden on taxpayers e.g. Benefits

• Social Costs• Increased crime• Civil unrest• Increased burden on the health system

T H E U K E C O N O M Y ( M A C R O E C O N O M I C S )T O P I C 2

EVIDENCE OF UNEMPLOYMENT

Cyclical• When the UK experienced a recession between 2008 and

2012 there was a fall in aggregate demand.

Structural• There has been a decline in many manufacturing industries.

The reasons for this include:

• Inability to compete with foreign competition e.g. ‘tiger economies’

• Rapid mechanisation• Privatisation of national industries e.g. BT

TRENDS

• From1993 to 2007 the UK experienced a downward trend.

• This can be account for by:• Sustained economic growth• A slowdown in the numbers of school leavers - More

students going to Uni or College.• Success of the “Welfare to Work” programme

• 2007 to 2012 the UK experienced and upward trend.

• This can be accounted for by:• Recession• Fall in aggregate demand• Reduction in Government spending

REGIONAL DIFFERENCES & PATTERNS OF EMPLOYMENT

REGIONAL DIFFERENCES• There are huge differences in unemployment depending on

the part of the UK you live.

• Regions closer to London or the South East of England have low unemployment. Whereas Scotland, Northern Ireland and the North East of England tend to have high unemployment.

PATTERNS• Fall in employment in Primary and Secondary sector• Rise in tertiary sector employment• Rise in female employment and reduction in male

employment.