39. Employment and Unemployment

• ILO(International Labour Organisation)

  • The ILO is responsible for ensuring advancements on social and economic justice by setting international labour standards
  • Enabling employment opportunities by aiding those who struggle to get them due to their background
• Discouraged Workers: These are workers that are out of work for a long time who may give up on the job search and leave the labour market, thus being counted as being unemployed.
• How is un/employment classified by the ILO

  Those who work for at least ONE hour per week are classified as being employed

  Those who are not working but are currently seeking work are classified as being UNEMPLOYED
• Benefits of a High employment rate:

  • Increase in Real GDP and living standards of a country
  • Increased tax revenue as people are earning higher incomes therefore government gets a higher tax yield
  • Scarce resources being used instead of being wasted
• Employment Rate- The percentage of the population between 16-64 currently in work
• Problems with the Employment Rate:

  • ILO classifies those who work 1hr/w as being unemployed so an increase in the employment rate may disguise a degree of underemployment(people who work short hours but want more hours)
• Measuring Unemployment:

  The Office of National Statistics (ONS) uses two main methods to measure unemployment

  • Claimant Count
  • Labour Force Survey(LFS)
• Seasonal Unemployment = Unemployment caused by season (e.g in winter there are less ice cream sellers than summer)
• Frictional Unemployment is?


  Transitional Unemployment,caused by people changing from one job to the other. In a healthy economy, a level of this is good as people are moving to more rewarding jobs. This type of unemployment can exist due to imperfect information
• Structurual Employment(Technological Unemployment)


  This type of unemployment occurs when there is a long term decline in the demand for the goods of services of an industry, this is because firms experience low levels of revenue and then lay off workers in response.

  This can also happen with improvements in technology leads to labour being replaced by capital which saves cost per unit resulting in higher efficiency
• Cyclical (Demand Deficient) Unemployment


  This occurs when there is a lack of demand for goods and services, normally happening in negative output gaps and in a recession.

  Firms are forced to make workers redundant or to close down as profits are falling due to decreased consumer spending.

  EV: This type of unemployment could actually be caused by increases in productivity as a single worker can produce a higher output of goods and services in a given time frame therefore less workers are needed.
• Creative Destruction: This is when advances in technology lead to previous forms of production becoming redundant such as labour being replaced by capital.
• Fixing Unemployment?


  This can be done through an expansionary monetary policy, which focuses on decreasing interest rates, Increasing exchange rates and Increasing money supply.

  A decrease in interest rates creates a disincentive for consumers to save, which leads to consumers spending more on the economy contributing to the positive multiplier effect whereby C ^, leading to an increase in I^ for firms and leading to a higher government tax yield.

  Since Labour is derived demand, an increase in Real GDP will allow for Unemployment to fall.
• Fixing Unemployment


  Introduce Supply Side Policies such as giving subsidies to firms in order to help make technological advancements leading to [PICTURE] , consequently this could lead to creative destruction as labour is being made redundant . Although, the government could use the supply side policies in order to retrain labourers and increase their adaptability

  
• Voluntary Unemployment: This occurs when workers make a decision not to enter the labour market at the current wage rate due to benefits being too high creating a disincentive to work. This can also happen if income tax is high and workers instead claim benefits instead.
• The Philips Curve is an economic theory that inflation and unemployment have a stable and inverse relationship when the economy is working at full employment. When unemployment falls this means we are working beyond full employment(positive output gap) and this allows