2.3 Unemployment

Question 1

What is the population of working age?

Answer 1

Those aged between 16 and 64

Question 2

Who are the economically active (the labour force)?

Answer 2

Those of working age who are willing and able to work - includes employed and unemployed

Question 3

What are the economically inactive

Answer 3

People of working age who are not able, and/or not willing to work

Question 4

What is the labour force participation rate?

Answer 4

(labour force/population of working age) x 100

Question 5

Who are the unemployed?

Answer 5

The part of the labour force without paid work, available for work and actively seeking employment at the going wage rate

Question 6

What is the level of unemployment?

Answer 6

The number of unemployed

Question 7

What is the unemployment rate?

Answer 7

(unemployed/labour force) x 100

Question 8

What is the level of employment?

Answer 8

The number of people who are in paid work

Question 9

What is the employment rate?

Answer 9

(number of employed workers/population of working age) x 100

Question 10

Who are the underemployed?

Answer 10

Workers who are in paid work but experiencing a lack of enough paid work, or work that does not make full use of their skills and abilities

Question 11

What is frictional unemployment?

Answer 11

Short term unemployment occurring when workers are out of work and between jobs

Question 12

Which three types of unemployment can cause frictional unemployment?

Answer 12

Search unemployment, casual unemployment, seasonal unemployment

Question 13

What is structural unemployment?

Answer 13

Unemployment caused by workers losing jobs due to the change in the structure of an economy because of changes in patterns of economic activity

Question 14

Which three types of unemployment can cause structural unemployment?

Answer 14

Regional unemployment, technological unemployment, international unemployment

Question 15

What is occupational mobility of labour?

Answer 15

Where workers are willing and able to move between different types of jobs and occupations

Question 16

What is geographical mobility of labour?

Answer 16

Where workers are willing and able to travel further to work, and also to move between different areas and regions for work

Question 17

What is cyclical unemployment?

Answer 17

Unemployment due to a lack of aggregate demand

Question 18

What are the costs of unemployment?

Answer 18

• Fall in income and living standards
• Increasing income inequality between employed and unemployed
• Fall in consumer spending
• Fall in government revenue from taxation
• Increased government spending to support unemployed
• Possible “brain drain”

Question 19

What benefits can unemployment create?

Answer 19

• Firms wishing to expand can draw from a larger pool of available workers
• Wage inflation likely to be reduced
• May be a reduction in pay related industrial action
• Can provide workers an opportunity to find the most suitable work

Question 20

What is the natural rate of unemployment/NAIRU (Non accelerating inflation rate of unemployment)?

Answer 20

The level of employment at full employment

Question 21

What causes demand deficient unemployment (Keynesian view)?

Answer 21

It is due to a lack of aggregate demand and persists due to markets not adjusting in the long run

Question 22

What is the UK government’s main measure of unemployment?

Answer 22

The Labour Force Survey (LFS)

Question 23

What are the advantages of the LFS?

Answer 23

A wide measure thought to be more accurate than the claimant count
The LFS is an internationally comparable measure
Other information about the nature of employment and unemployment is collected in the survey

Question 24

What are the disadvantages of the LFS?

Answer 24

Samples may be unrepresentative and subject to response errors as well as low rate of response
Costly to administer
Takes time to compile and there may be “time lags” in data

Question 25

What is the Labour Force Survey (LFS)?

Answer 25

Based on a quarterly survey of a sample of approximately 25000 UK housholds

Question 26

What is the Claimant Count?

Answer 26

A measure of those claiming unemployment-related benefits - the Job Seekers Allowance (JSA) and Universal Credit (UC)

Question 27

What are the advantages of the Claimant Count?

Answer 27

Easy to collect as it is a tally of those receiving the JSA and out of work UC claimants Relatively costless to obtain An accurate measure of those claiming unemployment related benefits

Question 28

What are the disadvantages of the Claimant Count?

Answer 28

Heavily influenced by eligibility rules There may be fraudulent benefits claims Not internationally comparable

Question 29

Why does unemployment tend to be underestimated?

Answer 29

Measures of unemployment do not include part time workers or those in jobs below their skill level - fails to reflect underemployment Some individuals are not classified as unemployed, having moved from unemployment to inactivity

Question 30

What does the significance of the consequences of unemployment depend on?

Answer 30

The rate of unemployment The duration of unemployment The cause of unemployment - structural more harmful than frictional as structural causes are likely to persist and may lead to a loss of skills and reduction in the productive capacity of the economy The distribution of unemployment The geographical and occupational mobility of labour The natural rate of unemployment

Question 31

What are possible policies to reduce structural unemployment?

Answer 31

- Retraining of unemployed workers - occupational mobility of labour - Government providing improved transport infrastructure - geographical mobility of labour - Government can provide subsidies to employers in regions with high levels of unemployment - Government provide incentives for new industry to relocate to areas with high levels of unemployment

Question 32

What are possible policies to reduce frictional unemployment?

Answer 32

- Industries affected by seasonal fluctuations in demand can diversify their products to provide a greater range of goods and services to attract demand throughout the year - Workers affected by seasonal/casual unemployment can train to compete for jobs in a wider range of sectors - Reduce unemployment related benefits - Improve information provision about job availability

Question 33

What are possible policies for reducing cyclical unemployment?

Answer 33

Expansionary fiscal policy: - increased government spending (G) will increase aggregate demand - reduced taxation (T) leads to greater consumer expenditure and greater AD - since labour is a “derived demand” this will lead to lower cyclical unemployment Expansionary monetary policy: - reducing the central bank rate, which will filter through to other market interest rates - households and firms are likely to spend (C) and invest (I) more lead to increased AD - this will lead to lower cyclical unemployment

Question 34

What are the possible policies for reducing the natural rate of unemployment?

Answer 34

Supply side polices for reducing frictional and structural unemployment