Employment & Unemployment

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Unemployment

Unemployment is defined as the number of people who are actively seeking a job but currently without a job.

There are two main measures of unemployment: Claimant Count and the International Labour Organisation (ILO) measure.
The Claimant Count (CC) is defined as a person who is receiving the Job Seekers’ Allowance.
The ILO measure defines unemployment as someone who has been actively seeking work for the past four weeks but ready and able to start in the next two weeks. This is collected in the UK by the Labour Force Survey.

You are employed even if you do not get paid for the job (e.g. charity workers).
You are employed even if it is part-time work, although you may be 'underemployed' if you would like more hours but can't obtain them.
Do not confuse unemployment with inactivity. For example, stay at home parents, and people who are too ill to work, or people who are students are not unemployed because they are not seeking work. They are known as 'economically inactive'.

A rise in unemployment caused by a recession may cause the natural rate of unemployment to increase.
This is because when workers are unemployed for a time period, they become deskilled and demotivated and are less able to get new jobs - this is known as 'hysteresis'.

There are many different types of unemployment. These types can also be voluntary or involuntary.

Frictional unemployment happens when people are between jobs.
Most economies will always have some level of frictional unemployment and it isn't a huge concern for governments.
In fact, it can even be a positive sign for an economy because it may indicate that workers are willing to take risks by moving in search of better pay or a job they are better suited to.

This happens when there is a mismatch between the skills that workers have and the skills that firms are looking for.
This is linked to changes in an economy over time and the changing demands of firms.
For example, de-industrialisation and the closure of the coal mines in the UK in the 1980s led to high levels of unemployment in the affected areas.

Cyclical unemployment is unemployment that is related to the business cycle. It is caused by the economy moving from expansion to recession, and is short term.
This is also known as Demand Deficient or Keynesian unemployment.

Unemployment due to the seasons of the year (e.g. ski instructors in the summer).

Real-wage unemployment is because real wages are too high in a market and they are above the 'market-clearing' (equilibrium) wage rate.
This is also known as Classical unemployment.

Free market economists might suggest that real-wage unemployment is caused by factors such as:
- High trade union power.
- High national minimum wages.
- 'Sticky' wages (slow to adjust).

Unemployment, employment and inactivity can be measured as a rate. Changes to these rates has an impact on the economy.

The unemployment rate is the % of the workforce who are currently unemployed but seeking a job.

The employment rate is the % of population of a working age (who are capable of working) who are employed.

The inactivity rate is the % of population of a working age (who are capable of working) who are not actively seeking employment.

If there was a higher rate of employment, there would be economic growth:
- Incomes would rise, people would consume more, the government could tax more.
- However, people may also demand more imports and inflation may occur.

If there was a higher rate of unemployment, there would be slower economic growth.
- Average income would be reduced, consumption would be reduced, the government would have to pay more benefits and receive less tax.

If the economic inactivity rate rose, the government would be impacted:
- Government expenditure (on benefits, pensions etc.) would rise
- The government would receive less income.