Unemployment
Aims and Objectives
Aim:
Understand types of unemployment
Objectives:
Define 2 measures of unemployment
Explain current trends in UK & EU
Analyse causes of unemployment
Evaluate social costs of unemployment
Starter
Unemployment
 Number of people willing and
able to work but unable to
find work.
 http://www.bbc.co.uk/news/u
k-17043305
 2.67 million
 8.4%
LFS & Claimant Count
LFS
• Includes people who have looked for work in
the past month and are able to start work in
two weeks.
Claimant Count
• Includes people able to claim JSA.
Equilibrium Unemployment
RWR
ASL
ALF
W1
ADL
Q2
Q1
• ALF = aggregate
labour force of a
nation.
• ASL = aggregate
supply willing to work
at W1.
• Unemployment =
difference between
ALF and ASL.
• Q2-Q1
EMPLOYMENT
Re-create on your whiteboards and explain.
Replacement Ratio
• In the case of a low paid worker loosing their job the replacement
ratio is one factor influencing time spent searching for a new job.
Replacement Ratio = disposable income out of work
disposable income in work
• High level of benefits disincentives employment
• Ratio of 1 means receive same on benefits as would if employed.
• High ratio = unemployment trap
Replacement Ratio
Age Range
JSA Maximum Amount
Under 25
£53.45pw
Over 25
£67.50pw
Couple
£105.95pw
• Beauty Technician Job – Barton Le
Clay £6.08ph 16 hours per week
• Calculate Replacement Ratio
• £53.45/£97.28 = 0.55
• The benefits received when
unemployed 'replace' 55% of the
worker's disposable income when in
work.
Replacement Ratio
Age Range
JSA Maximum Amount
Under 25
£53.45pw
Over 25
£67.50pw
Couple
£105.95pw
• Over 25
• Care Assistant Dunstable £8.07ph
25 hours pw
• Calculate Replacement Ratio
• £67.50/£201.75 = 0.33
• The benefits received when
unemployed 'replace' 33% of the
worker's disposable income when in
work.
For which job is there more incentive to
remain on benefits and unemployed?
Types of Unemployment
Task
• Can you remember the five types of
unemployment in an economy?
Structural Unemployment
Unemployment due to
declining industries such as
mining or ship building
Frictional Unemployment
People who are unemployed
between jobs
Cyclical Unemployment
General unemployment
which follows the business
cycle
Seasonal
Unemployment
Unemployment from
seasonal jobs, e.g. Fruit
picking
Technological
Unemployment
Unemployment due to
technological
advancements.
Cyclical Unemployment
PRICE
LEVEL
AD1
LRAS
AD2
• Arises during
downturn/recession
• Fall in AD actual GDP
lies below potential
GDP – negative output
gap
P1
• Labour derived
demand
Y2
Y1
REAL
GDP
• Unemployment rises
Classical Unemployment
• Wage rate
increases
• More workers
supply themselves
QS
• Firms demand QD
• Unemployment
QS-QD
Real
Wage
ASL
W2
W1
ADL
QD
Q1
QS
Employment
Armies of the Unemployed
• What may be the social costs in the EU of
high unemployment?