Employment and unemployment

Key terms:

• Unemployment – people able and willing to find work and are actively seeking a job but do not currently have a job.
• The Labour Force – employed + unemployed.
• Underemployed – where a person does not have enough paid work or is doing work that doesn’t fully utilise their skills.
• Inactive – those able to work but choose not to participate in the labour force.

Measures of unemployment

• Labour Force Survey – those who have been unemployed for at least 4 weeks and can start work within 2 weeks (minimum of 1 hour per week).
• Claimant count – those who are registered to receive benefits.

Causes of unemployment

• Structural – change in the structure of an industry leading to labour not having the new required skills (e.g. coal mining).
• Frictional – workers unemployed but only for a very short period of time whilst between jobs.
• Seasonal – anything related to the time of the year (e.g. tourism).
• Cyclical or demand-deficient – unemployment caused by a recession. It is where jobs go during the recession, but they will come back.

Real wage inflexibility – wages are inflexible leading to excess supply of labour (it may be the impact of the minimum wage).

Unemployment and migration

Effects of migration:

Net migration: Immigration (people entering the country) minus emigration (people leaving the country).
Effects of unemployment:
On consumers:

1. Lower incomes and living standards fall.
2. Wider unseen cost – the unemployed lose morale which may lead to repercussions for family members.

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On firms:

1. Consumers spend less → firms lower prices → firms generate less profit.
2. However, workers are more willing to stay in their jobs due to the fear of becoming unemployed. Therefore, workers will increase their productivity so output increases.

On the government:

1. An increase in unemployment means that the government will have to pay more jobseekers’ benefits and they will receive less income tax.

On workers:

1. The skills of workers may become outdated or obsolete – e.g. office workers who have been out of work for a while may not have the necessary skills to use the new technology within the office instantaneously.

Society as a whole:

1. Unemployed resources create an opportunity cost as society has a lower output.
2. Society has a lower standard of living than the optimum level.
3. There is the potential for more crime and civil unrest as more consumers have a lower annual income.