Unemployment usually occurs during low levels of economic growth.  Unemployment is highest during a recession.  The main consequence of unemployment is the fall in AD.

 

Unemployment in the UK is measured via two main ways:

Claimant Count:  This includes the people that are eligible to receive Job Seeker Allowance (JSA) which can be collected for 6 months. The only issue with the Claimant Count is that it doesn’t include those people who may be willing to work if they are not in the ‘category’ to work.  For example: People above the retirement age and under 18’s. 

The Labour Force Survey: This includes the people who have been looking for work for a month and are willing to work within the next 2 weeks.  The labour force survey is the measure that is used for international comparison.

 

Causes and types of unemployment:

 

Frictional Unemployment = Those who are voluntarily unemployed.  For example: People searching for jobs or even moving between jobs.  If there is inaccurate or imperfect information regarding jobs, Frictional unemployment is also likely to occur. For example: If people don’t know where the jobs are there will be a geographical immobility of labour. The imperfect information will mean that there is market failure.  This could be improve via Supply Side Policies which I will explore later.  Talking about these things will be considered your CHAIN OF ANALYSIS in the exam.

A person who deliberately refuses to take a wage below a certain rate despite it being offered to them would also be considered as frictionally unemployed.  This would be because they think that the income tax rate and benefit system would leave them worse off.  If this happens and people refuse to take work due to income as an unemployed person being more (eg, from welfare benefits) than from a job it would be considered as falling into an unemployment trap.

 

Casual Unemployment: This is when workers are made redundant on a short term basis. A typical example is a construction worker.  They are only going to work when somebody demands for a house or building or something to be built.  If there is no demand, they simply have not work.  Due to this their income is unstable.  Freelance workers are also a typical example.

• Seasonal unemployment: This a branch of casual unemployment that occurs during different courses of the year as there are fluctuations in demand.  For example: Ice Cream Van workers tend to work during the summer season and are unemployed during the winter.  This is specifically SEASON unemployment.

 

Structural Unemployment: This type of unemployment has been very prominent in the UK over the past few decades.  It’s when there’s a change in the ‘structure’ economy.  When there is a decline in the primary and secondary sectors of the economy, manufacturing falls and deindustrialisation occurs. This means that that big industrial organisation being to close. 

REAL LIFE EXAMPLE: When Margaret Thatcher caused a decline in the mining industry in the UK after closing mines.  This mean that miners lost jobs. Long Story short: It lead to a lot of the population becoming unemployed and because they weren’t trained to have the skills to work in other jobs it meant that living standards dropped massively. Here is the link for some info:

http://en.wikipedia.org/wiki/UK_miners'_strike_(1984%E2%80%9385)

 

There were lots of strikes but nothing really happened because Thatcher basically didn’t care.  Due to this, Trade Unions don’t really have a good relationship with the Conservatives right now.

 

Deindustrialisation has typically occurred due to the fact that other countries such as India, Japan and China hold a comparative advantage to produce those products.  Due to this it is cheap to produce there.  UK firms also find it cheap to set up in those countries due to the lack of pollution permits and absence of national minimum wage, therefore it's easier to exploit workers.  This lowers costs of production and so they prefer to produce there, as a result workers in the UK lose jobs.

• Technological Unemployment: This is a branch of Structural unemployment and happens when machines replace workers.  New capital may be brought and would it could be more efficient to use it instead of labour so redundancies would be made.  At the same time, the people needed to maintain and operate may REDUCE the level of unemployment! [This is a good evaluation point of increasing capital]

 

Cyclical Unemployment/Demand- Deficient: Result as a fall in over AD in the economy. Occurs during a recession.  This leads to an increase in the negative output gap and a fall in GDP per Capita… Eventually a fall in living standards.  [CHAIN OF ANALYSIS]

 

Voluntary and Involuntary unemployment:  Voluntarily Unemployed = Someone who is not willing to accept work despite being offered it. Example: A frictionally unemployed person.

Involuntary Unemployment = Someone who is willing to accept work despite wage rate but is still not offered it.  Example: A cyclically unemployed person.

Classical/Real-Wage Unemployment:  This is when wages are above the market clearing level.  This means that wages are high and automatically the demand for workers will fall whilst the supply of labour will rise.  Obviously, if the wage are higher more people want jobs so there will be an excess supply which will lead to Classical Unemployment.