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.

Measures of unemployment

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.

Unpaid work and inactivity

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'.

Impact of unemployment: workers

The consequences of unemployment for individuals can include:
- Falling incomes.
- Poverty.
- Depression.
- Health problems.
- Poor standard of living.
- Debt problems.

Impact of unemployment: economy

The consequences the wider economy can include:
- Crime (negative externalities).
- Higher fiscal deficit as tax revenues fall and welfare payments rise.
- If there is hysteresis, the LRAS of the economy shifts in (its long run potential falls).
- Loss of workers to foreign countries.
- May cause rising income inequality.

Hysteresis

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'.

Types of Unemployment

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

Frictional unemployment

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.

Structural unemployment

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

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.

Seasonal unemployment

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

Real-wage unemployment

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.

Causes of real-wage 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).

Rates of Employment, Unemployment and Inactivity

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

The Unemployment Rate

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

The employment rate

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

The inactivity rate

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

Rise in employment rate

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.

Rise in unemployment rate

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.

Rise in inactivity rate

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.

1Introduction to Markets

2Market Failure

2.1Market Failure

2.1.1Types of Market Failure

2.1.2Externalities

2.1.3The Deadweight Welfare Loss of Externalities

2.1.4A-A* (AO3/4) - The Externalities of Education

2.1.5Public Goods

2.1.6Information Gaps

2.1.7End of Topic Test - Market Failure

2.1.8Application Questions - Market Failure

2.2Government Intervention

2.2.1Government Intervention in Markets

2.2.2Subsidies & Price Controls

2.2.3Pollution Permits & Regulation

2.2.4A-A* (AO3/4) - European Emissions Trading

2.2.5State Provision & Information Provision

2.2.6Government Failure

2.2.7End of Topic Test - Government Intervention

2.2.8A-A* (AO3/4) - Government Intervention

3The UK Macroeconomy

3.1Measures of Economic Performance

3.1.1Measuring Economic Growth

3.1.2National Income Data

3.1.3Inflation

3.1.4Causes of Inflation

3.1.5Consequences of Inflation

3.1.6Employment & Unemployment

3.1.7Causes & Impact of Unemployment

3.1.8A-A* (AO3/4) - Hysteresis

3.1.9Balance of Payments

3.1.10Current Account Deficit & Imbalances

3.1.11End of Topic Test - Economic Performance

3.1.12Application Questions Macroeconomy

3.2Aggregate Demand

3.2.1Aggregate Demand

3.2.2Consumption

3.2.3Investment

3.2.4Government Expenditure

3.2.5Net Trade

3.2.6End of Topic Test - Aggregated Demand

3.2.7Application Questions - AD

3.3Aggregate Supply

3.3.1Aggregate Supply

3.3.2End of Topic Test - Aggregated Supply

3.3.3A-A* (AO3/4) -Aggregate Supply

3.4National Income

3.4.1National Income

3.4.2Injections & Withdrawals

3.4.3Equilibrium Level of Real National Output

3.4.4Multiplier Effect

3.4.5End of Topic Test - National Income

3.4.6Application Questions - National Income

3.5Economic Growth

3.5.1Causes of Economic Growth

3.5.2Output Gaps

3.5.3Business Cycle

3.5.4Impact of Economic Growth

3.5.5End of Topic Test - Economic Growth

3.5.6A-A* (AO3/4) - Growth

4The UK Economy - Policies

4.1Macroeconomic Objectives & Policies

4.1.1Possible Objectives

4.1.2Demand-Side Policies - Monetary

4.1.3Demand-Side Policies - Monetary 2

4.1.4A-A* (AO3/4) - The Future of Interest Rates

4.1.5Demand-Side Policies - Fiscal

4.1.6Demand-Side Policies in 2007-08

4.1.7Strengths & Weaknesses of Demand Side

4.1.8Supply-Side Policies

4.1.9Supply-Side Policies 2

4.1.10Conflicts Between Objectives

4.1.11A-A* (AO3/4) - Conflicting Incentives

4.1.12Phillips Curve

4.1.13End of Topic Topic - Policies & Objectives

4.1.14Application Questions - UK Policies

5Business Behaviour

5.1Business Growth

5.1.1Size & Types of Firms

5.1.2Business Growth

5.1.3Pros & Cons of External Expansion

5.1.4Demergers

5.1.5End of Topic Test - Business Growth

5.1.6A-A* (AO3/4) - Business Growth

5.2Business Objectives

5.2.1Business Objectives

5.2.2End of Topic Test - Business Objectives

5.2.3Application Questions - Business Objectives

5.3Revenues, Costs & Profits

5.3.1Revenue

5.3.2Costs

5.3.3Economies & Diseconomies of Scale

5.3.4Profits

5.3.5Profits 2

5.3.6End of Topic Test - Revenue, Costs & Profits

5.3.7A-A* (AO3/4) - Revenue, Costs & Profit

6Market Structures

6.1Market Structures

6.1.1Efficiency

6.1.2Perfect Competition

6.1.3Perfect Competition 2

6.1.4Monopolistic Competition

6.1.5Oligopolies

6.1.6The Prisoner's Dilemma

6.1.7Collusion in Oligopolistic Markets

6.1.8A-A* (AO3/4) - Which Factors Affect Collusion?

6.1.9Monopolies

6.1.10Price Discrimination

6.1.11Monopsony

6.1.12A-A* (AO3/4) - Models in Economics

6.1.13Contestability

6.1.14Benefits of Contestability

6.1.15End of Topic Test - Market Structures

6.1.16Application Questions - Market Structures

6.1.17A-A* (AO3/4) - Cereal Collusion

6.2Labour Market

6.2.1Demand for Labour

6.2.2Supply of Labour

6.2.3Labour Market Imperfections

6.2.4A-A* (AO3/4) - Labour Productivity & Unemployment

6.2.5A-A* (AO3/4) - What Level of Unionisation is Good?

6.2.6Wage Determination

6.2.7Elasticity of Labour Supply & Demand

6.2.8Intervention in Setting Wages

6.2.9End of Topic Test - Labour Market

6.2.10A-A* (AO3/4) - Labour Markets

6.3Government Intervention

6.3.1Reasons for Government Intervention

6.3.2Government Promotion of Competition

6.3.3Usefulness of Competition Policy & Examples

6.3.4A-A* (AO3/4) - Modern Competition Policy

6.3.5Privatisation

6.3.6Government Regulation

6.3.7A-A* (AO3/4) - Nationalisation vs Privatisation

6.3.8Government Protection of Suppliers and Employees

6.3.9Impact of Government Intervention

6.3.10End of Topic Test - Government Intervention

6.3.11Application Questions - Government Intervention

7A Global Perspective

8Finance & Inequality

8.1Poverty & Inequality

8.1.1Absolute & Relative Poverty

8.1.2Inequality

8.1.3Inequality 2

8.1.4Lorenz Curve

8.1.5Government Policy on Poverty

8.1.6End of Topic Test - Poverty & Inequality

8.1.7A-A* (AO3/4) - Inequality & Poverty

8.2Emerging & Developing Economies

8.2.1Measures of Development

8.2.2Factors Influencing Growth & Development

8.2.3Barriers to Development

8.2.4Barriers to Development 2

8.2.5A-A* (AO3/4) - The Bottom Billion

8.2.6Development Strategies

8.2.7Interventionist Strategies

8.2.8Aid

8.2.9International Institutions

8.2.10International Institutions 2

8.2.11End of Topic Test - Emerging & Developing

8.2.12Application Questions - Developing Countries

8.3The Financial Sector

8.3.1Role of Financial Markets

8.3.2Market Failure in the Financial Sector

8.3.3Role of Central Banks

8.3.4End of Topic Test - The Financial Sector

8.3.5A-A* (AO3/4) - Financial Sector

8.4Role of the State in the Macroeconomy

8.4.1Public Expenditure

8.4.2Taxation

8.4.3Public Sector Finances

8.4.4End of Topic Test - Role of the State

8.4.5Application Questions - Role of the State

9Examples of Global Policy

9.1International Policies

9.1.1Global Debt & Deficit Policies

9.1.2Poverty & Inequality Policies

9.1.3Changes in Interest Rates

9.1.4Competitiveness Policies

9.1.5End of Topic Test - International Policies

9.1.6A-A* (AO3/4) - International Policies

9.2Policy Responses to Shocks

9.2.1International Tax Policies

9.2.2Problems for Policymakers

9.2.3End of Topic Test - Policy Responses

9.2.4Application Questions - Policy Responses

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