Employment and unemployment

 Unemployment – Those who are willing, able and registered to work, but cannot find a job despite searching actively.


A) Measures of unemployment:

The claimant count

This measures the number of people claiming job seekers allowance in the UK. However, the requirements for claiming job seekers allowance are much more extensive than the labour force survey meaning those who fit the ILO definition of unemployed are not always eligible to claim. For example, those who are unemployed, but have a partner that is working are not eligible to claim JSA. Furthermore, those who are under 18 or have a certain level of saving also cannot claim JSA. As a result of this, the claimant count figure of unemployment is often lower than the labour force survey figure.


The International Labour Organisation (ILO) and the UK Labour Force Survey

This is a survey given to a random sample of households within the UK. The households then tick a box to determine whether they fit the ILO definition of unemployment (Ready to work within two weeks and have actively looked for work in the past month, but cannot find a job). Unemployment statistics are then made based upon the results of these surveys. The Labour force survey is a worldwide measurement of unemployment thus making it easier for international comparisons of unemployment to be made. In total the survey goes out to around 60,000 UK households; however, as this is just a sample it means that there can be room for error. This makes the labour force survey prone to sampling errors which may cause the unemployment figure to be relatively inaccurate.


B) The distinction between unemployment and under-employment

Those unemployed do not currently have a job despite actively searching and being willing and able to work. On the other hand, those underemployed are currently working, but in a job that they are overqualified for and where their skill set is not being fully utilized. For example, a student that has just graduated with a law degree would be underemployed if they started working in a fast food restaurant. In the UK, the economy is nearing full employment; however underemployment still remains a big issue.


C) The significance of changes in the rates of:

Employment – The number of people in work can often increase whilst the unemployment figure also increases. This is due to increased immigration boosting the number of people that are in the workforce. Although some may get jobs, others may not, or replace those who are already working. Alternatively it could also be due to a reduction in the number of people who are not actively searching for a job and therefore aren’t in the workforce.

Unemployment – On the other hand, the number of people not working could rise whilst the employment figure increases. This is due to an increase in the number of people who are economically inactive. These individuals will not be in work; however they will not be counted in the unemployment figure.

Inactivity – Those who are 16-64 and are not actively looking for a job are part of a group called the economically inactive. This may be for a number of reasons e.g. long term sickness, a lack of motivation etc. The economically inactive are not counted in the unemployment figure and therefore the unemployment figure doesn’t represent the problems associated with increases in those economically inactive. This is often one of the main cons of both unemployment measurements. Roughly 9,000 people aged 16-64 in the UK are economically inactive. The number of people who are not in the workforce often increases as unemployment does. This is because those who don’t find jobs in the short term become unmotivated and therefore drop out of the workforce.


D) The causes of unemployment:

Structural unemployment

The two main causes of structural unemployment include geographical immobility and occupational immobility. Geographically immobile workers are unwilling to move in order to find a job e.g. due to family ties or the costs involved in moving houses. On the other hand occupational immobility is caused by workers either having no skills, or skills that are no longer needed. A good example of this was during the closure of the coal mines. The majority of workers only had mining skills and therefore could not find a new job as they had no relevant skills. Therefore, they either remained unemployed, dropped out of the workforce, or retrained. This caused a big increase in unemployment during the 1980’s


Frictional unemployment

This occurs between the time workers are unemployed and when they find a new job. During the time that they are looking for a new job, they are frictionally unemployed. Policies such as educational and careers advice can reduce the amount of frictional unemployment within an economy as they are able to make employment decisions quicker.


Seasonal unemployment

Some jobs are only available in certain seasons. For example, Ski resorts are often only open during the winter. Therefore Ski instructors will work during the winter, but will be unemployed during the time when the season changes, or find another job.


Demand deficiency and cyclical unemployment

Cyclical unemployment

Cyclical unemployment is caused by a decrease in the aggregate demand of an economy (AD1 to AD2). A decrease in AD means that there is a decrease in the demand for goods/services within the economy. As the demand for labour is derived from the demand for goods/services, a decrease in AD causes unemployment to increase. This is due to the fact that firms do not need as much output as before as there is not enough demand to sell all the goods/services that they currently produce. As firms do not need to sustain their current output levels, there is no need for the current number of employees/to hire more employees. Therefore, firms will reduce the number of staff they have to meet the change in the level of demand for their goods/services, or they stop hiring more employees. This causes output/real GDP to fall (Y1 to Y2) and an increase in the general price level (P1 to P2).


Real wage inflexibility

Real wage inflexibility

Fixing wages above the equilibrium rate (minimum wage) can result in the supply of labour being more than the demand for labour. As a result of this, there is an excess supply of labour, otherwise known as real wage unemployment. This is due to the fact that the fixing of wages does not allow the equilibrium level to be reached and therefore a state of full employment is unable to be attained. The real wage unemployment is the difference between the demand for labour and the supply of labour (D-S).


E) The significance of migration and skills for employment and unemployment

A lack of skills in the economy can have a big impact on the occupational mobility of labour and therefore the rate of unemployment. A highly occupationally immobile workforce will struggle to find jobs as they do not have relevant skills. Therefore, if they are to get a job, they will have to retrain in an area where there is demand for that particular skillset. Overall, high levels of occupational immobility can cause the unemployment rate to be particularly high and could even cause long term employment for those workers who do not get retrained.

Migration causes an expansion of the people in the workforce. This is especially the case considering the majority of migrants are of working age. The increase in the workforce means that the supply of labour increases at thus reducing domestic workers’ wages. Although this is the case, the people affected most by migration tend to be those that are on the low end of the pay scale, as migrants that come to the UK often used to get paid lower than the UK national minimum wage and therefore are more willing to work for a lower pay.

However, this effect is reduced by the fact that the increase in migrants increases the demand for UK goods/services. As the demand for labour is derived from the demand of goods/services, this means that the demand for labour also increases thus reducing excess supply.

Read more…