A2 Economics
Chapter 16: Employment and
Unemployment
10.09.2015
Mr. Miah
History to Employment in UK
O From the early 90s, unemployment fell continuously from a
peak of 3 million to half that amount by early 2008.
O Indicating a huge rise in employment and decrease in
unemployment during the course of 16 years.
Less of a problem for the UK?
Recession hits UK Economy
O By early 2009, recession hits UK economy once again.
O Unemployment, as a result, climbed to 2.3 million by
March 2009.
O Similar growth in unemployment in high-income countries
such as USA, Germany, France and others – was also
experienced.
BEGGING THE QUESTION:
The government’s macroeconomic objective: achieve full
employment (or low unemployment), is undoubtedly never
achievable! Discussion.
Post-recession in the UK
O Unemployment continued to grow after the
recession (as it usually does) – Quick tester:
How would this be measured?
O In Oct. 2011 unemployment peaked at 2.68
million, but then falling to 2.51 million in April
2011.
O The coalition government currently maintains
unemployment is a crucial aspect of their work;
employment in the private sector has grown
significantly.
http://www.bbc.co.uk/news/uk-33877755
What is full employment?
O Two types of definitions:
1. Beveridge definition – Occurring when unemployment
falls to 3% of the labour force. – What’s the criticism of this
definition?
2. Free-market definition – Occurs at the market-clearing
real wage rate; where no. of workers ‘wishing’ to work
equals no. of workers employers ‘wish’ to hire.
O Definition: The level of employment at which all those
who wish to work have found jobs; except for those
frictionally unemployed. (Wall, A-Z Economics)
Guess the reasons for
unemployment
O Frictional
unemployment
A casual form of being unemployed; workers
are laid-off on a short-term basis. Also refers
to fluctuations in weather conditions or
demand.
O Structural
Unemployment caused by workers being
between jobs (time in-between one job-toanother).
O Seasonal
Collapse in business and consumer
confidence results in fall of AD, therefore
deficient AD, results in cyclical
unemployment.
unemployment
unemployment
O Cyclical unemployment
Unemployment due to operational decline of
industries, hence redundant and thus not
skilled enough for other progressive jobs.
Equilibrium unemployment
O The level of unemployment when the
economy’s aggregate labour market is in
equilibrium.
O Frictional unemployment and structural
unemployment; redundant workers from
declining industries, but who lack skills to
enter a growing industry – both make up
equilibrium employment.
Natural rate of unemployment
(NRU)
O Definition: It is the unemployment rate when
unemployment is restricted to its equilibrium
level.
O Similar to equilibrium unemployment, NRU
measures aggregate labour market – but is
expressed as a rate of unemployment as oppose
to level.
Difference between Equilibrium unemployment
and NRU
Recap
O History of UK unemployment and the recession
O Full employment definition
O Key reasons for unemployment
O Equilibrium and Natural Rate of Unemployment
(NRU)
Today
L.O
O Understand the employment rate and the
main causes of unemployment.
Measuring employment and
unemployment
O The employment rate strongly correlates with the
‘economic cycle’; rising in recovery and boom
phases, but falling when growth slows down.
O However, the employment and unemployment cycles
usually lag a few months behind the output cycle.
O As a result, employers hang on to their best workers
at the beginning of a downturn. Why would employers
do this? Consequence?
O Similarly, at the beginning of a recovery period,
employers offer overtime before deciding to recruit
new workers. What’s the benefit of this?
Draw and annotate
O Figure 16.3 – Changes in the UK
employment rate.
O Critically look at the figures, analyse then
move onto evaluating what may have
caused unemployment (we learnt the
factors in our last lesson) that have resulted
in in the change from Apr 2008 to Apr 2013.
There are two
methods used to
calculate UK
unemployment
1. The Labour Force Survey
O Most favoured by government
O Uses Internationally recognised definitions
and is recommended by International
Labour Organisation (ILO)
O Quarterly survey of 60,000 households
O People counted as unemployed if actively
seeking work (looking within last 4 weeks).
2. The claimant count
O A monthly check measuring the number of
people claiming unemployment-related benefits.
List the benefits in this category
O A by-product of the admin system for paying
benefits to unemployed people; i.e. Jobseeker’s
Allowance.
O Criticism: does not provide accurate measure of
true unemployment – HOW?
O Free-economists argue claimant count
overstates true unemployment; not genuinely
looking for work or unemployed due to
undeclared jobs.
Costs and Consequences of
Unemployment
O “Unemployment is a waste of human capital” – Is this
wholly true? How can one justify this statement?
O Free-market economists argue a certain amount of
unemployment is necessary to make the economy
function better – REALLY! What are your thoughts?
O WHY?
By providing downward pressure on wage rates,
unemployment reduces inflationary pressures – WHAT DO
THEY MEAN BY THIS? NEGATIVES OF THIS.
Consequence to the
unemployed person
O Unemployment obviously bad for the
unemployed and their family.
O Low incomes that accompany
unemployment, tend to by default, lead onto
a low standard of living.
THOUGHT PROVOKING:
O Have the unemployed become marginalised
in society?
Losses
Self-esteem is reduced and sometimes shattered
Families suffer from increased health risks
Greater stress
A reduction in the quality of diet
An increased risk of marital break-up
Social exclusion from loss of work + income
VIDEO
O The longer the duration of unemployment the greater the
loss.
O
O
O
O
O
O
O Pairs: HOW MUCH OF THIS DO YOU AGREE ON? AND CAN
EMPLOYMENT CHANGE ALL OF THIS? Discuss.
Video on unemployment in
the UK: “A job to get work”
Questions
O What is the vision from the government for the
unemployed?
O State issues the unemployed face.
O What initiatives are helping reduce unemployment?
O Identify, if any, causes of unemployment.
Q. Assess the costs and benefits of unemployment.
Are there any benefits to
Unemployment?
O Creates extra leisure time
O A level of frictional unemployment helps =
‘probably’ acceptable; growing firms can dip
into frictional unemployment market to meet
labour needs.
O Rising unemployment decreases inflation
Appropriate policies to reduce
unemployment
O Important to identify where the root cause
lies = demand or supply-side?
O Late 90s and early 2000s, generally agreed
the dominant cause of unemployment was
on supply-side of economy.
O Free-market argue: Peer-read
O Keynesian argue: Peer-read