Unemployment

• unemployment: are of working age, have no job and have been actively seeking for work for the past 4 weeks and ready to work in the next 2 weeks
• underemployment is when workers are employed in a job that is below their skill level or working less hours than they are willing to
• strucrural unemployment: there is a mismatch between avaialble jobs and the skills of the workforce
• real wage inflexibility- a trade union has successfully lobbied for higher wages for workers, but firms are unable to hire all those seeking work due to increases in wage costs
• cyclical or demand deficient unemployment - there is insufficient demand in the economy due to a recession, hence firms are unable to hire those who are looking for employment
• higher employment levels contribute positively to the economy
• employment allows people to earn an income to spend on goods and service, which stimulates demand, drives business growth and generates income tax revenues for the government
• employment contributes to overall economic growth and social stability
• employment leads to people developing their skills - allows them to produce faster and more efficiently. leading to potential wage increases
• employment leads to business investment as it drives demand which will motivate confident investors to invest in expansion and new ventures
• Governments can increase employment rates by bringing more women into the labour force. Women tend to have lower activity rates than men because many mothers give up jobs to look after young children. If more women join labour force, GDP rises, tax revenues rise and welfare benefits decreases for those living in low income households. However, more affordable child care facilities need to be put into place to accommodate this
• governments can increase employment rates by increasing the age of retirement. This helps the economy increase the size of its workforce, more people remain employed for longer which reduces the labour shortages caused by an ageing population
• UK gradual increase of retirement age to 67 for those born after April 1960
• governments can increase employment rates by making it harder to receive unemployment benefits, so people will have a higher incentive to work
• governments can increase employment rates by introducing immigration policies. this encourages the immigration of skilled workers which will help fill labour shortages
• skilled workers are more employable because they are flexible for multiple roles, reducing the impact of economic shocks. They become highly employable and can transfer their skills across different industries
• The more skilled workers are, the more productive they are. They perform tasks more efficiently and effectively (more accurately and with fewer errors
• • A highly skilled workforce is also beneficial to the economy as it increase the economy’s productive capacity 
• lack of skills makes labour occupationally immobile (hard to find and switch jobs) there fore decrease rate of unemployment
• Lack of skills due to limited education and skill mismatches can constrain workers ability to move between occupations. Impacts their employability 
• A highly occupationally immobile workforce will be confined to an industry with demand for their particular skill set, which isn’t always guaranteed
• • Money/time needed to become educated to have the skills demanded by firms 
• migration: refers to the movement of people from their usual place of residence to an re place of residence
• Internal migration (move within the same country)
• International migration (move across international borders) 
• Migrants bring skills, labour and diversity to countries 

  Increases the size of the labour force
• Highly skills migrants will contribute positively to innovation and economic growth. This leads to boosted productivity and competitiveness 
• Migration causes downward pressure on low skilled wages: industries will high number of low skilled migrants (an increase in labour supply) can cause lower wages due to higher competition. Migrants can accept lower pay than local workers 
• Migration graph

  
• • high unemployment leads to a loss of potential output, as unemployed workers are not able to contribute to the economy. This causes the economy to operate within their production possibility frontier (not reaching optimum production)
• unemployment causes Decreased consumer spending = less disposable incomes which will decrease consumer spending and reduced aggregate demand 
• unemployment causes reduced investment = firms will be less confident in the future prospects of the economy. Not willing to expand their operations
• unemployment causes lower labour force participation = lead to discouraged workers. Workers drop out the labour force. Reduces labour force and the economy’s productive capacity
• unemployment causes increased relative poverty. increase in poverty as unemployment workers are unable to meet their basic needs and may require government support through unemployment benefits and welfare benefits 
• Seasonal unemployment occurs when people are unemployed at particular times of the year where demand for labour is lower
• correcting seasonal unemployment:

  • offering training programmes
  • promoting industries with year round demand
  • diversifying skills to help workers find jobs in different industries during off season
  • encouraging off season unemployment
  • promote tourism
• real wage unemployment occurs when wages are above the equilibrium level. This causes the supply of labour to exceed demand (excess supply)
• correcting real wage unemployment:

  • adjusting wages to align with market conditions
  • Implementing wage subsidies
  • Encouraging voluntary wage reductions
  • Wage flexibility
  • Reducing the minimum wage
• demand deficient unemployment occurs when there isn’t enough demand for goods and services in the economy, leading to reduction in production causing workers to get laid off
• correcting demand deficient unemployment through fiscal policy

  • from government
  • Increase government spending
  • Reduce taxes