2.1.3 Employment and Unemployment

Question 1

What are the two Measures of Unemployment?

Answer 1

1. Claimant Count:
   The claimant count is a measure of unemployment based on the number of people who are claiming unemployment-related benefits, such as Jobseeker’s Allowance. It provides a narrow definition of unemployment, as it only includes those actively seeking and receiving government benefits.
2. International Labour Organisation (ILO) and the UK: Labour Force Survey: The ILO defines unemployment as individuals of working age who are without work, actively seeking work, and available for work.
   The UK Labor Force Survey is the primary source of unemployment data in the UK and follows the ILO definition.
   It provides a broader and more comprehensive picture of unemployment, including those not eligible for benefits.

Question 2

What is the difference between Unemployment and Under-Employment?

Answer 2

Unemployment refers to individuals who are not currently employed but are actively seeking and available for work.

Under-employment occurs when individuals are employed but their job does not fully utilize their skills and qualifications. This can result in part-time work, low wages, or jobs below their skill level.

Question 3

What is the Significance of Changes in Employment, Unemployment, and Inactivity?

Answer 3

Employment Rate: Measures the proportion of the working-age population in employment. A rising employment rate indicates economic growth.

Unemployment Rate: Measures the proportion of the labor force actively seeking work. A high unemployment rate indicates economic problems.

Inactivity Rate: Measures the proportion of the working-age population that is not in the labor force. It can indicate a lack of job opportunities or demographic factors.

Question 4

What are 5 Causes of Unemployment?

Answer 4

1. Structural Unemployment: Occurs when there is a mismatch between the skills of the workforce and the requirements of available jobs.
2. Frictional Unemployment: Temporary unemployment when individuals are between jobs or entering the workforce.
3. Seasonal Unemployment: Linked to seasonal variations in demand, e.g., tourism or agriculture.
4. Demand Deficiency (Cyclical) Unemployment: Arises from a lack of aggregate demand during economic downturns.
5. Real Wage Inflexibility: When wages are too high, leading to job cuts or an unwillingness to hire.

Question 5

How does Migration and Skills impact Employment and Unemployment levels?

Answer 5

Migration can impact employment by changing the supply of labor in specific regions. Immigrants may fill labor gaps, but this can also lead to wage pressures.
Skills are crucial for employment. A highly skilled workforce is more adaptable and less prone to unemployment in a changing economy.

Question 6

What are the Effects of Unemployment?

Answer 6

1. Reduced Output and Economic Growth
   Unemployed workers aren’t producing goods/services, which leads to underutilization of resources. GDP falls below potential, creating a negative output gap. Long-term unemployment can reduce human capital (skills deteriorate), further harming growth.
2. Lower Consumer Spending
   Unemployment leads to reduced household income, which lowers consumption, the largest component of GDP.
   * This creates a negative multiplier effect, reducing demand across sectors.
3. Deflationary Pressure
   High unemployment means weaker wage growth or even wage cuts. Lower income and spending contribute to downward pressure on prices, potentially leading to disinflation or deflation.
4. Increased Government Spending and Lower Revenue
   Unemployment raises government spending on benefits like unemployment insurance, welfare, and job training. At the same time, tax revenues fall (from income and consumption taxes), worsening budget deficits.
5. Higher Social Costs
   Long-term unemployment is associated with higher crime rates, mental health issues, and lower life satisfaction.
   * Youth unemployment can lead to a “lost generation” with long-term economic and social costs.
6. Widening Income Inequality
   Unemployment tends to hit lower-income and less-educated workers hardest, exacerbating inequality.
   This can fuel political and social unrest.
7. Weaker Investment Climate
   Businesses may cut investment due to weaker demand and excess capacity. Uncertainty about the economy can further deter private and foreign investment.