2.1.3 Employment And Unemployment

Question 1

What three categories are the UK labour force divided into?

Answer 1

employed, unemployed, economically inactive

Question 2

Unemployment

Answer 2

To be counted as unemployed , someone must be of working age , willing and able to work and actively seeking work but cannot find a job .

Question 3

Employment

Answer 3

Those who do more than 1 hour of paid work a week or are temporarily away from work ( e.g. on holiday ) , are on a government supported training scheme or do minimum 15 hours of unpaid work for their family business .

Question 4

Economically Inactive

Answer 4

Those who are neither employed nor unemployed ; they are people of working age not seeking employment as well as those seeking employment but not able to start work e.g. those in study , looking after family , health related issues , discouraged workers ( those who are fed up of applying ) , retirement and those who do not want or need a job .

Question 5

The level of unemployment

Answer 5

The number of people who are unemployed

Question 6

The rate of unemployment

Answer 6

The number of people unemployed as a % of the labour force

Question 7

Claimant count

Answer 7

The Claimant Count is the number of people receiving benefits for being unemployed (claiming Job Seekers’ Allowance) . It provides the number of claimants on particular day each month and the numbers joining and leaving the count each month .

Question 8

Problems with the claimant count

Answer 8

1. Not everyone who is eligible to sign on does so .
2. Self - employed workers who are temporarily unemployed tend not to claim .
3. The criteria for claiming JSA changes .
4. It only includes those eligible to claim .

Examples of excluded workers include :
- You must be over 18 and under state pension age ( currently 66 ) to claim .
- You must have paid the correct National Insurance in the last 2-3 years to claim ( this excludes those returning to work after a number years eg after raising children . )
- You cannot claim JSA if you are on a government training scheme .

There are also people claiming JSA who are not entitled to:
* Some people who claim JSA aren’t actively seeking work
* Some have jobs in black economy but continue to claim benefits

Question 9

The Labour Force Survey ( LFS )

Answer 9

a sample of people living in households and is a legal requirement for every country in the EU . It asks questions about personal circumstances and activity in the labour market to class people as employed , unemployed or inactive by the ILO definitions . The figures are only an estimate of the true level of unemployment as it is measured by a sample .

Question 10

Is the Labour Force Survey better than the Claimant Count?

Answer 10

1. Internationally recognised
2. Potential for analysis of data
3. Picks up trends in sectors
4. Better guide for policy makers
5. Generally accepted to be more accurate BUT : it is costly to compile , and it is subject to sampling and extrapolation errors

Question 11

Comparisons between the Claimant Count and Labour Force Survey

Answer 11

• Some individuals may be included in the Claimant Count but not in the LFS unemployment measure. This includes those working in the hidden economy or fraudulently claiming benefits.
• Conversely, some people classified as unemployed in the LFS are ineligible for benefits and excluded from the Claimant Count, such as those with working partners, full-time students seeking work, or individuals around State Pension Age. As a result, the LFS figure is generally higher.
• The Claimant Count and LFS rates may sometimes diverge due to the LFS being based on a sample, leading to short-term fluctuations, or due to labour market trends not reflected in the Claimant Count, such as more students or older individuals seeking work.

Question 12

Who are the hidden employed not included in the Clamant count and LFS?

Answer 12

It is argued that both underestimate the figure as they do not include those ( the hidden unemployed ) :

• working part time but would like to work full time
• on government training schemes who would prefer employment
• classed as sick or disabled
• who aren’t actively looking for jobs but would take a job if offered or are in education because they can’t get a job

Question 13

Policies that may help reduce economic inactivity

Answer 13

1. Improving financial incentives
2. Investment in human capital and labour market flexibility

Question 14

The employment rate and the unemployment rate

Answer 14

The employment rate is the percentage of the population of working age who are employed , and the unemployment rate is the percentage of the economically active who are unemployed .

Question 15

The activity / participation rate

Answer 15

the percentage of the population of working age who are economically active whilst the inactivity rate is percentage of the population of working age who are inactive .

Question 16

Under - employment

Answer 16

Under - employment occurs when people are counted as :
- Looking for an extra job or actively searching for a new job with longer hours to replace their current ( main ) job
- They prefer to work longer hours in their present job
- Under - employment also means that workers are under - utilized in terms of their ability , formal qualifications and experience .

Question 17

When does under employment tend to increase?

Answer 17

Underemployment tends to increase during recessions because firms will just reduce staff hours instead of making them redundant and having to pay expensive redundancies packages . It doesn’t have as many negative effects as official unemployment , but it does mean the underemployed have lower incomes and so will spend less , reducing aggregate demand and growth of the economy .

Question 18

How are changes in employment significant?

Answer 18

Measures the proportion of the working - age population in employment . A rising employment rate indicates economic growth as more jobs are being created .

Question 19

How are changes in unemployment significant?

Answer 19

Measures the proportion of the labor force actively seeking work . A high unemployment rate indicates economic problems . Unemployment represents a waste of resources and so the level of unemployment is a good indicator of a country’s economy .

Question 20

How are changes in economic inactivity significant?

Answer 20

• It can indicate a lack of job opportunities or demographic factors .
• Increases in inactivity will decrease the size of the labour force , therefore causing a fall in productive potential of the country .
• There will be a lower GDP and lower tax revenues as less people are working
• However , decreases in inactivity could just result in more people being unemployed if there are no jobs available to them .

Question 21

Long - term unemployment

Answer 21

refers to people who have been unemployed for 12 months or more . The longer someone is unemployed , often the harder they find it to get another paid job .
- One reason is that people’s skills worsen due to economic inactivity . Motivation to search for a job suffers the longer someone is out of work .
- Employers often favour people with a consistent record of being in work rather than those who have gaps in their CV .
- This is a structural supply - side problem in the UK labour market .

Question 22

Discouraged workers

Answer 22

Discouraged workers constitute one group of inactive work - seekers . These are persons who have ceased to seek work because they believe there are no suitable available jobs .

Question 23

Mass unemployment

Answer 23

Mass unemployment exists when officially one person in ten in the labour force is out of work . In practice , the true level of unemployment might be significantly higher than this .

Question 24

The Gig Economy

Answer 24

The gig economy is a work arrangement where people perform short - term , flexible , and often freelance work , typically through online platforms or apps . The gig economy has grown in popularity due to the rise of technology , the desire for flexibility , and the shift away from traditional employment . It is linked to zero hour contracts.

Question 25

Zero hour contracts

Answer 25

employment arrangements where workers are hired without a guarantee of work hours

Question 26

Frictional unemployment

Answer 26

This is unemployment that occurs as workers move between jobs , mainly through career moves or geographical changes . This type of unemployment is typically short - term , and often exists because workers do not have perfect and immediate information about every job opportunity that may be available to them . It is assumed that there is always likely to be some frictional unemployment that persists in an economy

Question 27

Structural unemployment

Answer 27

Structural unemployment is a long-term decline in demand for labor in an industry, leading to reduced employment due to increased international competition or technological advancements. It occurs when the demand for labor exceeds the supply in a specific labor market, such as shipbuilding. The lack of geographical and occupational mobility prevents individuals from finding employment and necessitates retraining.

Question 28

Demand deficiency and cyclical unemployment

Answer 28

This is unemployment caused by a general lack of demand for goods and services in the country. It's also known as Keynesian 'demand deficient' unemployment. During recessions or severe economic slowdowns, unemployment rises due to plant closures, business failures, and increased worker layoffs and redundancies. Businesses cut employment to control costs and restore profitability.

Question 29

Real wage inflexibility

Answer 29

Unemployment arises when real wages exceed market clearing levels, leading to an excess supply of labor. Some workers may be willing to work below the minimum wage, while companies may hire more workers at lower pay. However, this is illegal, preventing unemployed workers from finding jobs. Economists debate whether the minimum wage can cause severe unemployment in competitive industries. While evidence suggests limited impact on unemployment rates, it may result from unemployed workers rejecting low-paid jobs for welfare benefits.

Question 30

Migration

Answer 30

the movement of people from one country to reside in another

Question 31

Emigration

Answer 31

this occurs when residents of the UK leave to move to another country

Question 32

Immigration

Answer 32

this occurs when residents of other countries move to reside in the UK

Question 33

Net migration

Answer 33

this is the difference between those leaving the UK and those entering Net migration has increased the UK population , therefore increasing the productive potential of the economy

Question 34

Where have UK immigrants migrated from?

Answer 34

Since the 1990s , the UK has seen a large increase in immigration from mainly Eastern European countries . Most of these people come to the UK to work , are of working age and often take lower skilled jobs ; they are less likely to claim benefits than the existing population .

Question 35

Causes of migration

Answer 35

* Some may migrate to find work or for a specific job . * Some may migrate because their employer needs an existing employee to help set up a new firm in a foreign market . * Some may migrate to escape repressive regimes * Some may migrate for greater opportunities such as attending a foreign university . * Some may migrate to join family members

Question 36

Effects of migration

Answer 36

* UK firms can recruit foreign workers, increasing the labor supply and reducing the labor price equilibrium. * Increased migration theoretically leads to cheaper labor, but the national minimum wage prevents wages from falling. * Increased migration boosts economic demand, growth, and job creation. * Immigration enhances the economy's productive potential by providing resources. * Working migrants pay income tax, generating revenue for the government. * Countries with high immigration receive skills and education, while those with high emigration face a "brain drain" of skilled workers. * The circular flow of income ensures job creation and employment growth without unemployment, depending on the amount immigrants send home - money is spent on goods and services in the domestic economy leading to job creation. * Low-motivated, low-skilled UK workers face increased competition from hardworking, skilled immigrants, but the impact is limited, and middle and higher-income wages are usually unaffected.

Question 37

Why are skills important in employment?

Answer 37

* Economies progress over time requiring higher skills. In the UK, jobs requiring reading and writing were abundant 50 years ago but are scarce now. * To maintain employment levels, the UK must continuously enhance its workforce skills. * Structural unemployment arises from skill mismatches. Engineering companies struggle to recruit skilled workers despite local unemployment. * If firms don't train staff, the government intervenes, but this is costly, leading to long-term unemployment as skills don't match jobs. * Migrant workers may fill these shortages if their skills align.

Question 38

Impacts of unemployment on workers

Answer 38

* Unemployment leads to income loss and a decline in living standards, causing stigma and feelings of degradation, especially when signing on to use benefits. * This can lead to depression, stress, marital breakdown, physical illness etc. * Long-term unemployment (over 12 months) hinders job prospects due to skill loss. * Job holders face reduced job security, fearing redundancy and potential wage cuts.

Question 39

Impacts of unemployment on firms

Answer 39

* There's a likely decrease in demand for their goods (depending on the YED), which could lead to a fall in profit. * Long-term unemployment can lead to skill loss and reduced employability, reducing the pool of skilled workers firms can employ. * Firms may offer low wages as people accept jobs despite the lack of options due to the scarcity of employment.

Question 40

Impacts of unemployment on consumers

Answer 40

Consumers in areas of high unemployment face reduced choices and lower-quality goods due to run-down local shopping centers. The consumers lose out as they have less available to spend. Firms may respond by lowering prices and running sales to boost demand.

Question 41

Impacts of unemployment on the government

Answer 41

Reduced income leads to lower tax revenues and higher welfare spending for unemployed families, incurring an opportunity cost. This will increase the budget deficit, forcing the government to raise taxes, cut public spending on essential services like the NHS or education, or increase borrowing.

Question 42

Impacts of unemployment on society

Answer 42

* Rising unemployment is linked to social deprivation, crime, and social dislocation, such as increased divorce rates, worsening health, and lower life expectancy. * Areas with high unemployment experience a decline in demand for local goods and services, leading to reduced income for service workers and potential job losses. This results in a loss of potential national output and inefficient resource use. * If people permanently leave the labor market, it negatively affects LRAS and damages the economy's growth potential, preventing it from achieving its desired PPF. * Taxpayers' payments to the unemployed are not economic losses but transfers, but the economy suffers from reduced national output and social costs like violence and crime.

Question 43

What are the three main types of structural unemployment?

Answer 43

- regional unemployment, where certain areas suffer from low employment due to industry closures; - sectoral unemployment, where one sector experiences a significant decline in employment; - technological unemployment, where technological improvements replace jobs.