2.1.3 Employment and Unemployment

• Claimant Count


  The number of people claiming unemployment benefits
• Cyclical Unemployment


  Unemployment caused by a persistent lack of AD for goods and services, where national output < potential output leading to a negative output gap
• Demand Deficient Unemployment


  Planned demand is insufficient to generate a full-employment level of real national output, this is most likely to happen in a recession.
• Discouraged Worker


  People who are out of work for a long time stop looking for jobs and become economically inactive in the labour market this causes hidden unemployment.
• Disguised/ Hidden Unemployment


  Part of the labour force is either left without work or is working in a redundant manner where worker productivity is essentially zero.
• Economically Active

  Unemployed people seeking employment
• Economically Inactive


  Those of working age who do not work or seek work
• Frictional Unemployment


  Individuals moving between jobs. Lasts up to 6 months typically.
• Full Employment


  When there are enough job vacancies for all the unemployed to work.
• Human Capital


  a measure of individuals’ skills, knowledge, abilities, social attributes, personalities and health attributes that allow individuals to produce something of economic value
• Inactivity


  The state of not producing an economic output.
• International Labour Organisation (ILO)


  A United Nations agency whose mandate is to advance social justice and promote decent work by setting international labour standards
• Labour Force Survey


  A study of the employment circumstances of the UK population and provides the official measures of unemployment and employment
• Labour Shortages


  When businesses find it difficult to recruit the skilled workers they need.
• Labour Supply


  The number of people able, available and willing to work at prevailing wage rates
• Migration


  The movement of people from one geographical location to another to settle in the new region.
• Natural Rate of Unemployment


  The equilibrium rate of unemployment = frictional + structural unemployment.
• Net Inward Migration


  Number of migrants coming into a country is higher than those leaving in a given time
• Redundancy


  Ending the paid employment of a worker
• Seasonal Unemployment


  People are unemployed at times of year when the demand for labour is low
• Structural Unemployment


  Unemployment that results from the decline in an industry. They do not have the skills needed by industries that are growing so are unemployed
• Tight Labour Market


  Demand for labour is high and there are shortages of labour. Businesses may have to offer higher wages to attract and keep the workers they need.
• Unemployment Rate


  The proportion of the economically active population who are unemployed
• Unemployment Trap


  The prospect of the loss of unemployment benefits dissuades people from finding jobs
• Zero Hours Contract


  An employment contract where the employee is not guaranteed work and is paid only for work carried out.
• Real-wage/ Classical Unemployment

  Wages are set above the equilibrium price leading to an excess of labour this can be caused by trade unions or government minimum wages

  
• Solutions for Structural Unemployment

  -Relocation subsidies

  -Investment in education and training

  -Greater transport network
• Evaluation of Real Wage Unemployment

  -Not the case for highly-skilled labour as minimum wage either has no or minimal impact as the demand and supply of labour is inelastic

  -Low-skilled labour has very elastic demand and supply
• Unemployment 


  When someone is willing and able to work but cannot find a job
• Claimant Count and LFS Comparison

  -People in the hidden economy/who falsely claim benefits are not on the LFS

  -LFS is higher as some people are not eligible for benefits

  -Both exclude: working part-time but wanting full-time, sick or disabled or on government schemes, but want a job
• Under-employment


  When workers are willing to supply more hours than their employers are prepared to offer or are in jobs that do not reflect their skill level
• Impacts of Migration

  -Increased jobs due to increased spending by migrants

  -Lower wages for domestic workers as migrants are more willing to accept lower salaries
• Impact of Unemployment on Workers

  -Loss of income

  -Stigma of being unemployed leads to stress, suicide, marital issues

  -Lose skills after being unemployed for a long time

  -Lower job security

  -Fall in wages due to high labour supply
• Impacts of Unemployment on Firms

  -Decreased demand so profits fall

  -Long-term skills loss means labour supply decreases

  -Offer low wages
• Impact of Unemployment on Consumers


  -Less choice and lower quality

  -Less to spend

  -Firms may lower prices to increase sales
• Impact of Unemployment on the Government


  -Fall in tax revenue and higher spending on welfare benefits

  -Increased spending means taxes have to be raised, more borrowing or cutting spending in other areas
• Impact of Unemployment on Society


  -Social deprivation e.g. crime, divorce, lower life expectancy

  -Low demand for goods and services increases unemployment

  -Loss of national output due to inefficient production
• Draw a real wage unemployment diagram

  Is the minimum wage above the equilibrium? Have you labelled the unemployment area? Why is there a minimum wage?