Employment and Unemployment

A key objective of the government is to minimise unemployment and encourage employment. This will benefit the economy because

Employment leads to higher disposable income for individuals, and so higher spending.
This also leads to higher tax revenues for the government leading to higher government spending.
Employment can raise productivity leading to higher output at lower costs.
Higher consumption has a positive multiplier effect.

Unemployment

Unemployment is defined as those individuals who are out of work and actively seeking employment.

Unemployment is also measured as a percentage of the labour force and this is defined as those in work and those registered as looking for work. This is also known as the economically active population, or working population. The working population is defined as those individuals aged between 16 and 65 who could potentially work and includes students and parents raising children.

There are two basic measures of unemployment:

The claimant count (CC) is based on those individuals who are claiming job seekers allowance. This measure excludes those unemployed individuals who are not eligible for JSA because either they have a high level of savings or live with a partner who is in work.
The labour force survey (LFS) measure of unemployment is based on those individual who are actively seeking work and could start within two weeks. The LFS will always exceed the CC measure.

The participation rate is the proportion of the working population who are in the labour force. However, not every one of working age is in employment or unemployment. Some may be:

Students in full time education
Disabled and therefore unable to work
In prison
Caring for dependents such as children, elderlyor handicapped

The 4 types of unemployment

1. Seasonal unemployment represents unemployment that is affected by seasonal factors.

Unemployment may fall in the run up to Christmas as firms take on workers to meet Xmas orders and lay these workers off in the New Year when demand falls. The South West has a high level of seasonal unemployment because it main industry is tourism.

Employers that may recruit staff on a seasonal basis include:

Retail - supermarkets, clothing etc. - may recruit seasonal employees during busy periods such as christmas.
Agriculture - Farming.
Tourism.

2. Frictional unemployment usually lasts for less than one year and represents individuals who are moving between jobs or entering the labour market for the first time such as graduates.

These people are out of work for only a short period of time. The duration and numbers unemployed for this reason will increase during recession but fall during a boom, because:

Fewer jobs may be available during a recession and so there is higher competition.
School and college leavers are at a disadvantage because they lack the qualifications.

School, college and university leavers may find it difficult to get their first job because:

They don't have the experience in work.
They may have high expectations.
There may be high competition for jobs.

3. Structural unemployment represents those individuals who remain unemployed from longer than one year

These individuals remain unemployed for the long term because:

They lack the necessary skills for the supply of jobs available and so are classed as being occupationally immobile.
They can’t move location to where jobs are available because of high house prices and rents and so are classed as being geographically immobile.

Structural unemployment is also considered a supply side type of unemployment because it represents a mismatch between the demand for and supply of labour in the economy.

Structural or long term unemployment has become worse because of structural changes in the types of jobs being offered in the UK economy.

4. Cyclical unemployment is caused when the level of aggregate demand falls below the level of aggregate supply necessary to maintain the economy at its trend rate of economic growth.

This unemployment is therefore determined by demand side factors, but can lag behind changes in GDP by up to 12 months. Therefore, an initial change in the economic cycle will take longer to cause an initial change in the level of unemployment.

	Created by Amardeep Kumar over 9 years ago

A-levels Economics module 2 Note on Economics - module 2 - unit 3, created by Amardeep Kumar on 03/05/2015.