Unemployment

• Cyclical unemployment

  • Unemployment in a recession due to a lack of AD
  • Lower demand for labour, lower derived demand, lower AD
  • Firms marginal profits are lower, firms lay off workers
• Structural unemployment

  Change in the structure of an industry

  • Immobility of labour

  Occupational- skills mismatch

  Geographical- not willing or able to move to where job vaccanies lie
• Frictional unemploment

  In between jobs, putting off jobs in hope for better opportunity
• Causes of falling inactivity rate

  • Growth of self employment – rise of gig economy, increased flexible working​
  • Rising national minimum wage​
  • Fall in pension incomes due to e.g. low interest rates​
  • Expansion of free childcare – 30 free hours 9 months-4​
  • Falling UE rate
• measures of unemployment

  1. claimant count
  2. labour force survey
• claimant count method excludes:

  • People who are only looking for part-time work​
  • People who are not able/willing to visit the local job centre every week and meet criteria for actively seeking work.​
  • People who left their previous job voluntarily.​
  • under 18
• labour force survey limitations:

  • Sample may not be representative
  • Doesn’t explore those not being able to find employment at their desired wage​
  • Measures of unemployment may be harder to collate in some developing countries if there is no social security system – unemployed workers have no incentive to register​
• Causes of cyclical unemployment

  • low business confidence
  • Strong £
• Causes of structural UE

  • Globalisation leading to deindustrialisation
  • Technology leading to decline in jobs in retail sector
  • AI leading to declines in jobs in certain industries
• natural rate of unemployment

  the difference between those who would like a job at the current wage rate – and those who are willing and able to take a job. In the diagram, it is the level (Q2-Q1) 
• hysteresis UE

  a type of long-term unemployment that results from the persistence of high unemployment rates over an extended period of time. It occurs when the economy experiences a period of prolonged weakness, such as during a recession, which leads to a high level of structural unemployment.