2.1.3 Employment & Unemployment

• Someone is considered to be unemployed if they are not working but actively seeking work
  • They are part of the labour force
    
    
• A country's population is divided into the labour force - and non labour force
  • The labour force consists of all workers actively working and the unemployed (who are seeking work)
    • Usually between the ages of 16-65
  • The non labour force includes all those not seeking work e.g. stay at home parents, pensioners, school children
    • Economically inactive are those people who are between 16-65 and not working or not seeking work
      
      
• Unemployment in the UK is measured using two different approaches
  • The International Labour Organisation (ILO) Survey
  • The Claimant Count
    
    

The Differences Between the ILO Labour Force Survey & The Claimant Count

• Unlike the unemployed, people who are underemployed are working
  
  
• Someone is underemployed when:
  • They want to work more hours than they currently work
  • They are working in a job that requires lower skills than they have e.g. an architect working as a gym instructor
    
    
• Underemployment is often a response to cyclical unemployment
  • Workers who have lost their jobs in a weak economy are willing to take part-time jobs or accept roles outside of their main skill base
    
    
• Underemployment is also a consequence of structural unemployment
  • Unless workers retrain and gain new skills, it will be hard for them to gain full employment

Four Metrics Are Commonly Used When Analysing the Labour Market in an Economy

Unemployment rate	Employment rate
Labor force participation rate	Inactivity rate

• The employment rate could be increasing even as the unemployment rate is increasing:
  • May be caused by increased immigration which causes working age population to increase
  • May be caused by a decrease in the inactivity rate as people move from inactive to employed
    
    
• Unemployment rates do not capture the hidden unemployment that occurs in the long term
  • Workers look for a job but may eventually give up and become economically inactive
  • This actually improves the unemployment rate as fewer people are actively seeking work
    
    

• Structural unemployment occurs when there is a mismatch between jobs and skills in the economy
  • It usually happens as the structure of an economy changes e.g. the secondary sector is declining and the tertiary sector is growing
  • There is no longer a need for a specific type of worker e.g. ship builders in Glasgow
  • Many Western industries have relocated production to China causing structural unemployment in their economies
  • Unless workers receive help to retrain, they are often left unemployed or under-employed
    
    
• Cyclical or demand deficient unemployment is caused by a fall in AD in an economy
  • This typically happens during a slow down or recession
  • The demand for labour is a demand derived from the demand for goods/services
  • As output falls in the economy, firms lay off workers
    
    
• Seasonal unemployment occurs as certain seasons come to an end and labour is not required until the next season
  • E.g. fruit pickers; summer seaside resort workers; ski instructors
    
    
• Frictional unemployment occurs when workers are between jobs
  • This is usually short-term unemployment
  • Workers have voluntarily left their previous job to search for another
    
    
• Real wage unemployment occurs when wages are inflexible at a point higher than the free-market equilibrium wage
  • Usually caused by the existence of minimum wage laws
  • The higher wage creates an excess supply of labour
  • This excess supply represents real wage unemployment
    
    

• Labour is a key factor of production and one way to expand output in an economy is to increase the amount of labour available
  • This is often achieved through easing the inward migration policies (immigration)
    
    
• The UK has experienced significant immigration since the 1990's, especially from Eastern Europe
  
  
• Net migration is the difference between inward migration and outward migration (emigration)
  • Less developed economies generally have net outward migration
  • More developed economies generally have net inward migration
  • More developed economies usually have skilled workers emigrating

Significance On Employment

• The immigrants usually fill vacancies that the local citizens cannot (or will not) fill
  • These tend to be manual labour, dangerous, and low skilled jobs
    
    
• The increased supply of labour may push down wages in the economy, especially for low skilled jobs
  • Lower average wages are an incentive for employers to hire more workers
  • Employment may increase as a result
    
    
• Immigration results in an increased population which increases consumption in the economy
  • Greater output requires more labour so it creates more jobs
    

Significance On Unemployment

• Immigrants may displace some local workers increasing the level of unemployment
• Dependents of immigrants may be unable to find work and register as unemployed

• The effects of unemployment, especially long-term unemployment, are extremely damaging
  • There are impacts on the individual, the economy, the government, and firms

Long term unemployment affects individuals, the economy, government, and firms