·Unemployment: The number of people actively looking for work, willing and able, but who

cannot find a job at a point in time. Recent unemployment: 4.5%

* The unemployment rate in the UK averaged 6.83% from 1971 until 2021, reaching an all

time high of 11.90% in April 1984 and a record low of 3.40% in December 1973.

3.80% in the three months to July 2019.

* The level of unemployment: the number of people who are unemployed

* The rate of unemployment: the number of people unemployed as a % of the labor force
Unemployed
Rate of unemployment = * 100%
Labour force

·Labor Force: All those who are economically active (willing and able to work).

 Two Principle Measures

1. Claimant Count: The number of people claiming Job Seekers Allowance. It is a

measure of the number of people claiming benefits principally for the reason of being

unemployed, based on administrative data from the benefits system.

* It doesn’t attempt to measure unemployment. However, since the people claiming

benefit are generally a particular subset of the unemployed. It can provide a useful

indication of how unemployment is likely to vary between areas and over time.

 Problems with the Claimant Count: (1-4 underestimate; 5-6 overestimate)

1) Does everyone who is eligible sign on?

2) Self-employed workers who are temporarily unemployed tend not to claim

3) Under 18s and over 60s don’t count

4) Changing criteria for JSA

5) Some people who claim JSA are not actively seeking work

6) Some have jobs in the shadow economy but continue to claim benefits
 2. Labor Force Survey (International Labor Organization: Quarterly survey of

approximately 60,000 households compiled by the Office of National Statistics

studying the employment circumstances of the UK population.

 Advantages:

1) Internationally recognized

2) Potential for analysis of data

3) Picks up trends in sectors

4) Better guide for policy makers

5) Generally accepted to be more accurate

 Disadvantages:

1) Costly to compile

2) Subject to sampling and extrapolation errors

 The significance of changes in Rates:

1) Employment: a record number of people are in work in the UK in 2019. However,

the employment rate is not at its peak, because the population has grown in size.

2) Unemployment: the rate of unemployment has fallen significantly in 2019 and

headed for the lows that the UK experienced in the 1970’s.

3) Inactivity: this includes potential workers that have withdrawn from the workforce in

order to look after sick relatives, ect. This can lead to major challenged of individuals

and their families who can become isolated and experience despair

* The extent of the consequences demand upon the rate and duration of them.

* The unemployed: less experience and hard to back to work.

Economy: less revenue from tax, few money is able to spend on other sectors.

Business: people have less income, less consumption, less profits for firms
 The causes of unemployment:

1. Structural: occurs when long term shifts in the structure of the economy impact upon

the job market. It tends to increase in line with the pace of globalization.

* Shift towards tertiary sector employment and away from primary and secondary

sector employment causes large pools of highly skilled workers unable to find

work as there is limited demand for their labor. Therefore, they need to retrain and

gain new skills in order to find employment. This will take time and may be costly.

2. Frictional: occurs as workers move between jobs, mainly through career moves or

geographical changes. It is typically short-term. It is assumed that there is always

likely to be some frictional unemployment.

* It is often exists because workers do not have perfect and immediate information

about every job opportunity that may be available to them.

3. Seasonal: occurs when workers are unemployed at different times of the year. This

tends to happen in seasonal industries (e.g. tourism, farming) and retail industries

(more workers are employed over busy periods).

* It can distort unemployment figures. Therefore, unemployment is often seasonally

adjusted, which seeks to smooth out the fluctuations in employment levels to

provide more accurate statistics.

4. Cyclical: It is linked to the economic cycle and occurs when there is a negative

output (when the level of actual GDP is less than potential GDP).

* It indicates that demand is low. This means firms do not need to employ as many

workers due to less goods are needed to produce as demand has fallen.
·Real wage inflexibility: Occurs when real wage rates are above the equilibrium wage rate

* Workers will supply more of their services at higher wage rates. However, firms will

demand less workers as the wage rate is too high. This causes the supply of labor to be

greater than the demand for labor.

* In this circumstances, the real wage rate would fall and the market would return to

equilibrium. However, distortions to the labor market (national minimum wage) can

maintain real wage rates above their equilibrium.

·Classical LRAS: It believes that market will always function efficiently over the

long-run, and so an economy will produce on the outer boundary of it production

possibility curve. Thus, the LRAS curve is vertical, marking a maximum limit of

production. Without shifting LRAS, increase in AD only costs inflation.

·Keynes LRAS: John Maynard Keynes believed that an economy could be equilibrium

below full employment.

·Supply-Side Unemployment

If a firm experiences an increase in costs, due to higher wages, it may reduce their supply.

Or, in response to cyclical unemployment, it may reduce production in order to not left

with surplus stock or may be expensive to hold. This will shift supply curve inwards,

which creates unemployment. As a result, RNO decreases, and price level increases.

* SRAS can shift when there is a change in the costs of production:

1) Changes in costs of raw materials and energy

2) Changes in exchange rates

3) Changes in tax rates

 The significance of migration and skills for employment and unemployment:

· Net Migration: The difference between emigration and immigration.

* Net migration into the UK increase the number of workers come to the UK

significantly. This has increased the supply of labor to UK businesses of both skilled

and unskilled workers.

* The UK is facing significant skills shortages. This leads to higher wages in theses

fields with wages being bid up, increasing costs for firms.

 The effects of unemployment:

1. Lost output: unemployment represents a significant wastage of economic resources.

Therefore, it is likely that the economy will produce within the PPF.

2. Increased government spending: more spending on JSA and employment programs,

which means less spending is available to other sectors.

3. Lost tax revenue: due to lower income tax receipts and less tax from consumption.

4. Reduced demand for goods / services

5. Reduced productivity

6. Reduced profitability

7. Less incentive to invest

8. Reduced morale and productivity of remaining workforce who are perhaps concerned

over future potential job losses.

9. Lower living standards: unemployed will have lower incomes

10. Social costs: unemployment can enhance the likelihood of illnesses and stress

11. Financial costs: looking for work incurs a time cost and increase utility bills at home

12. De-Skilling: workplace skills can’t be developed which diminishing human capital

13. Reduced chances of finding work