Unemployment

Question 1

Unemployment General Definition

Answer 1

The number of people who are available for work (i.e. in pop of working age, have a fixed address, and are actively seeking work) and are without a paid job

Question 2

To be employed have to be

Answer 2

• Able to work (i.e in pop. of working age, have fixed address, etc.)
• Out of work
• Actively seeking work

Question 3

To be inactive have to be

Answer 3

• In pop. of working age
• Out of work
• Not actively seeking work

Question 4

PPF includes which populations

Answer 4

Employed + Unemployed (i.e. working population/labour force)

Question 5

Working population / labour force

Answer 5

= Number of employed and unemployed people, but not inactive

Question 6

Effect of more inactives on PPF

Answer 6

Inward shift (because further from full capacity)

Question 7

Effect of less inactives on PPF

Answer 7

Outward shift (because closer to full capacity)

Question 8

Representing unemployment on PPF

Answer 8

X below curve

Question 9

Representing unemployment on business cycle

Answer 9

Gap between real GDP and underlying trend when underlying trend is below real GDP (i.e. the negative output gap)

Question 10

Reasons for unemployment + employment both rising at same time

Answer 10

• Net immigration
• Natural pop. increase
• Inactives become economically active, some of whom find a job and some of whom don’t

Question 11

Reasons for unemployment + employment both falling at same time

Answer 11

• Emigration
• Natural pop. decrease
• Both employed and unemployed economically actives become inactive

Question 12

Calculating unemployment rate

Answer 12

Unemployed / (Unemployed + Employed)

x 100

Question 13

ILO Unemployment

Answer 13

• Official measure of unemployment in the UK
• Used internationally
• Measures level and rate of Uk unemployment
• Does this through carrying out the Labour Force Survey
• This is a quarterly survey produced by ONS which interviews a random sample of 40,000 households (around 80,000 people)
• From this an estimate of the number of people in the UK who fit the ILO definition of unemployed (unemployment level) can be calculated, and from this the unemployment rate

Question 14

Claimant Count

Answer 14

• Measures number of people currently claiming Job Seeker’s Allowance (an unemployment related benefit)
• Not officially an alternative measure of employment as doesn’t use ILO definition, there is a difference set of criteria you have to fill to claim.

Question 15

Differences between ILO and CC criteria

Answer 15

ILO: 16+ // CC: 18+
ILO: Can be in full-time education // CC: Can’t be in full-time education
ILO: ‘Without a paid job’ - so excludes underemployed // CC: Includes those working less than 16 hours a week
ILO: Can have had unlimited job offers // CC: Have to take first job offered to you
ILO: Out of work and actively seeking it - no time restrictions // CC: Have to have been unemployed for 4 weeks, ready to start work in 2

Question 16

Reasons for Claimant Count underestimating unemployment

Answer 16

• Some ILO unemployed people choose not to bc time-consuming, have to take first job given, negative stigma surrounding it, moral objection given their circumstances
• Some ILO unemployed people not eligible bc too high savings, high-earning spouse, only recently moved to UK, etc.
• CC excludes 16-17 year olds that are ILO unemployed
• CC excludes ILO unemployed people who are in full time education
• CC excludes people who haven’t been out of work for 4 weeks, and people who are seeking work for the future but not able to start in 2 weeks.

Question 17

Problems with ILO unemployment figure

Answer 17

Survey > statistical error, sampling issues, expensive + time consuming to collect data so only done on a quarterly basis

Question 18

Lagging indicator

Answer 18

An indicator for which rises or falls related to economic growth happen after that of economic growth. ?

Question 19

Unemployment in the Uk

Answer 19

Current Level - 1.6 million
Current Rate = 4.8%

Claimant Count - 800,000 (540,000 of this JSA)

Question 20

Inactivity in UK

Answer 20

Current Level - 8.89 million
Current Rate - 21.7%

Generally decreasing, however increases in periods of economic downturn (i.e. early 1990s, 2008>2009)

Question 21

Population of Working Age (Current + UK)

Answer 21

18-64 (but upper limit increasing with changes being made to the pension age) ???

Question 22

Costs of unemployment - on individual

Answer 22

• Unpredicted loss of earnings > lower living standards > can also impact family
• Psychological cost
• Can lose skills if out of work for a long period of time
• Hysteresis Effect - harder for people who have been out of work for a long time to find work

Question 23

Costs of unemployment - firms

Answer 23

• Less consumption > less profit
• Fall in demand for businesses further down supply chain ?
• Negative multiplier effect can cause small businesses to close

Question 24

Costs of unemployment - Government / Boarder Society

Answer 24

• Rise in poverty > wider inequality gap
• More social unrest and crime (bc unemployed > less money and more time)
• If people are unemployed for a long time may choose to leave labour force > increased inactivity > PPF shifts / fall in GDP