3.2 Low Unemployment

• ''Employment'' is defined as ''the use of labour in the economy to produce goods and services''
• ''Unemployment'' is defined as '' When workers able and willing to work at the current wage rates are unable to find employment''
• Unemployment is measured using the 'claimant count': People claiming job seeker's allowance have to declare that they are out of work, available for work and capable of undertaking work in the week of their benefit claim.
• The advantages of the 'claimant count' are: it is easy to measure, and it is a cheap method of collecting data.

  The disadvantages of this are: Some people may fraudulently claim Job Seeker's allowance who are not out of work and others may be excluded/ ignored from the data even though they are genuinely unemployed e.g. anyone on a training scheme, anyone who does not wish to claim benefits, anyone over retirement age who is unemployed, and other groups in society who are unemployed but not entitled to claim this benefit.
• The rate of unemployment is defined as ''the percentage of the country's workforce that is unemployed''
• The level of unemployment is the numerical value.

  The rate of unemployment is the % of the workforce which is unemployed.
• The equation to calculate the Rate of Unemployment is :

  Unemployment Rate= number of unemployed/ x100

  workforce
• Cyclical unemployment is defined as ''unemployment caused by a lack of demand in the economy''. It is a short term cause and is also known as 'demand deficient' unemployment. An example of this is when in a recession people lose their jobs as demand falls for their product (fall in 'derived' demand for labour).
• Structural unemployment is defined as ''unemployment caused by a permanent decline of an industry or industries''. It is a long term cause.
• Seasonal unemployment is defined as ''unemployment caused by a fall in demand during a particular season''. This is a short term cause.
• Frictional unemployment is defined as ''unemployment caused by time lags when workers move between jobs''. This is a short term cause.
• Analysis of how cyclical unemployment is caused:

  Economic growth falls in the economy and demand falls (consumers may have lower disposable incomes so consumer spending is lower)--> demand throughout the economy as a whole (AD) falls. --> Firms now reduce their production levels and their 'derived demand' for labour falls. --> With lower demand for labour, workers are made unemployed. This is 'cyclical' unemployment.
• Analysis of how structural unemployment is caused:

  This is where an entire sector of an economy declines. E.g. in the 1980's, the UK's manufacturing sector declined and 3.5 million jobs were lost. There are numerous reasons why an entire sector of the economy may decline. It may be because labour costs within that industry in other countries are lower- and firms move their production overseas. This is one of the most difficult types of unemployment to solve.
• Analysis of how seasonal unemployment is caused:

  At certain times of the year, demand for certain products fall as they are ''out of season''. E.g. ice creams in winter.
• A consequence of unemployment for individuals is that workers will have lower standards of living. When workers lose their jobs, their disposable income will fall. --> Workers will be reliant upon benefits, which could be much less than their wage. --> with lower incomes, people can buy fewer goods + services, so are materially worse off. --> As demand will fall further, cyclical unemployment could arise further, making the economy as a whole worse off.
• A consequence of unemployment for regions is that with unemployment not spread evenly across a country, some regions experience much higher than average levels of unemployment. Loss of jobs in some areas --> people move out in search of employment in other regions --> Other shops close down as demand/ spending falls locally --> House prices fall... as too does household's confidence --> Further falls in output occur due to a negative multiplier -->Even greater unemployment occurs in these regions.
• A consequence of unemployment for the government is that high levels of unemployment may generate a budget deficit for the govt. The govt. will have to spend more on benefits for the unemployed. It also loses tax revenues from workers when they're unemployed, as they now pay less income tax + national insurance contributions. Total consumer spending falls, causing the govt. to receive less tax revenue (e.g. V.A.T) + possibly worsening cyclical unemployment. As govt. spending increases and tax revenue falls, a budget deficit occurs.
• A counterargument to consequences of unemployment is that a level of frictional unemployment may be beneficial for an economy: it occurs when there is a time lag between people moving between jobs. This can be beneficial for businesses because if they advertise job vacancies then there will be people to apply for them. Without people moving between jobs, then firms will not be able to fill job vacancies.
• A counterargument to consequences of unemployment is that high unemployment can keep wages down (see diagram in notes). If there is a large number of workers looking for work, this means that there will be a high supply of labour. Quite simply, firms will not be able to raise wages to attract workers to apply for jobs. Wages are lower --> lower costs of production --> keeps firms competitive.
• In judgement, the impact of unemployment will depend upon:

  -the exact level of unemployment --> how much does it rise by?

  -how long the level of unemployment remains high for.

  -what the cause of unemployment is.