Unemployment

• Government objective is to minimise unemployment levels
• The target unemployment rate for the UK is 4-5%
• Full employment


  An economic situation in which all available labor resources are being used in the most efficient way possible
• Fractional unemployment


  Time period where workers are transitioning between jobs
• 100% employment is not possible because there will always be a level of frictional unemployment
• Low levels of unemployment are a sign of a strongly performing economy and are inversely linked to real GDP growth 

  • When real GDP increases, unemployment falls
  • When real GDP decreases, unemployment rises
• Unemployment trends

  • In the 6 years following the 2007 financial crisis, unemployment in the UK remained relatively high
  • Unemployment declined during economic recovery in 2012, reaching its lowest levels just before Covid in 2020. However, with restrictions, unemployment rose again
  • Unemployment increased from 2021 to 2022, but decreased over 1% in 2023
• Level of unemployment


  Number of people who are looking for a job but cannot find one
• Rate of unemployment


  Number of people out of work as a percentage of the labour force (all the people who are willing and able to work)
• Ways of measuring unemployment

  • The International Labour Organisation (ILO) survey
  • The Claimant Count
• The ILO Labour Force Survey

  • An extensive survey is sent to a random sample of households every quarter (60,000 households in the UK)
  • The same survey is used globally so it's useful for making international comparisons
  • Respondents self-determine if they are unemployed based on the following ILO criteria
  • Ready to work within the next two weeks
  • Have actively looked for work in the past month
• The Claimant Count

  • Counts the number of people claiming job seekers allowance or unemployment benefits
  • There is a more strict requirement to be considered unemployed than with the ILO survey
  • It often requires claimants to meet regularly with a 'work coach'
• Economically inactive


  People who are neither employed nor unemployed. They're not in paid full-time or part-time wage, but they're also not looking for a job or available to start work
• Advantages of the Claimant count

  • The data is easy to obtain (just counting the number of people claining benefits)
  • There is no cost in collecting the data as it is recorded when people apply for benefits
• Advantages of the ILO survey

  • It is thought to be more accurate than the claimant count
  • It is an internationally agreed measure for unemployment, so it's easy to make comparison with other countries
• Disadvantages of the claimant count

  • It can be manipulated by the government to seem smaller (changing the rules e.g. raising the school leaving age to 19)
  • It excludes people who are looking for work but are not eligible to claim any benefits
• Disadvantages of the ILO survey

  • It is expensive to collect and put together the data
  • It may seem unrepresentative because the sample taken is random
• Consequences of unemployment for businesses

  • Reduced demand for goods and services that leads to a decreased aggregate demand (AD)
  • Reduced productivity
  • Rediced profitability
  • Fewer incentives to invest
• Cyclical unemployment


  When the unemployment rate rises during a recession and falls during a recovery. It's caused by fluctuations in the economic cycle
• Structural unemployment


  Unemployment due to occupational or geographical immobilities. Often occurs after structural change in the economy. E.g. closure of mines
• Technological unemployment


  Unemployment that may arise from the introduction of new technology which displaces workers. New technology will create new jobs in other areas, but those made redundant may lack the necessary skills and flexibility to seamlessly move from old job to the new jobs.
• Seasonal unemployment


  When people are unemployed at particular times of the year when demand for labour is lower than usual