Unemployment

=What is Unemployment? =

Key Terms:
 * Unemployment rate: Unemployment expressed as a percentage of the total labour force.
 * Unemployment: Those without work, who are actively seeking work. Sometimes measured by those claiming unemployment benefit (but not always-see below)
 * The Labour Force: Those people of working age who are in work or without a job but actively seeking work. So those of working age, such as students are not included as they are not looking to work
 * People of working age (16-65 usually)

Student Task:



Under-employment: under-utilization of labor which is missed by most official (governmental agency). [|For an example of under-employment follow this link]

definitions and measurements of [|unemployment].

Full employment: When the labour market is in equilibrium. Where everyone who is supplying their labour has a job. Note that this is not the same as zero unemployment as some people may be unwilling or unable to supply their labour at the market equlibrium wage level

The Natural rate of unemployment. That level of unemployment that occurs when their is full employment and the labour market is in equilibrium. = = =Measuring Unemployment = Here is a link []

Open this and go to the link Measuring Unemployment. Make notes on the different measures of unemployment (the Claimant count and the LFS) __**The key thing to note is that often it is difficult to accurately measure unemployment because:**__
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px; line-height: 1.5;">There is often hidden unemployment due to "discouraged workers".
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px; line-height: 1.5;">Often people are underemployed but not unemployed. This is still a major problem even though it would not appear in the data.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px; line-height: 1.5;">Some people may be registered as unemployed but working in the "black economy" where incomes are undeclared.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px; line-height: 1.5;">Unemployment figures do not take into account whether it is long or short term unemployment
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px; line-height: 1.5;">Unemployment figures do not take into account regional, ethnic, age or gender disparities. For example unemployment rates may be low, but amongst 18-25 yr old males living in the North of England from Ethnic minority groups, unemployment may be a serious problem

=<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Costs of unemployment =

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">watch the video by clicking on the link below and note all the different costs of unemployment, not just to the NEETs but also to the area as a whole. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px; line-height: 0px; overflow: hidden;">

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=<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Causes of Unemployment =

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">In a modern economy unemployment has a variety of causes. Among the main types of unemployment we can consider:
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Real wage unemployment
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Demand deficient unemployment
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Frictional unemployment
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Structural unemployment
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Seasonal

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">It is also useful to divide unemployment into equilibrium and disequilibrium unemployment

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Equilibrium Unemployment: <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">This is where the labour market is in equilibrium ie where Labour Supply=Labour Demend. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">It consists of the following:

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Frictional unemployment

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Frictional unemployment is transitional unemployment due to people moving between jobs: For example, newly redundant workers or workers entering the labour market (such as university graduates) may take time to find appropriate jobs at wage rates they are prepared to accept. Many are unemployed for a short time whilst involved in job search. Imperfect information in the labour market may make frictional unemployment worse if the jobless are unaware of the available employment opportunities. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Some of the frictionally unemployed may opt not to accept jobs if they believe the tax and benefit system will reduce significantly the net increase in income from taking paid work. When this happens there are dis-incentives for the unemployed to accept work. Again this is more likely a problem with developed countries which have large welfare systems.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Structural unemployment
<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Structural unemployment occurs when people are made unemployed because of capital-labour substitution (which reduces the demand for labour) or when there is a long run decline in demand in their particular industry. Structural unemployment exists where there is a mismatch between their skills and the requirements of the new job opportunities. Many of the unemployed from heavy manufacturing industry (e.g. in Coal mining in UK) may find it difficult to gain re-employment without retraining. Note that technology itself does not cause unemployment in a whole economy, but rather it may reduce the demand for labour in a particular industry. Those workers may have to find jobs elsewhere (possibly working in a technology industry after retraining)

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Seasonal Unemployment

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">As you would expect this is unemployment caused by seasonal changes in Demand eg low season in tourist areas.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Voluntary/equilibrium unemployment
<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Frictional, seasonal and structural unemployment are all regarded as voluntary unemployment. This may seem unfair, but the argument is that the structurally unemployed could retrain and get a job, the frictionally unemployed could toss burgers whilst waiting for their dream job, and the unemployed migrant workers could go back to their farms and work in the fields during Sanya’s low season. That they are unemployed shows they have not chosen those options and are thus classified as voluntary unemployed. This type and level of unemployment will naturally always occur and is therefore referred to as “The Natural Rate of Unemployment” and occurs even if the labour market is in equlibrium (and thus at “Full employment”) <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Another example of voluntary unemployment is discouraged workers - people who have effectively given up active search for jobs perhaps because they have been out of work for a long time and have lost both the motivation to apply for jobs and also the skills required. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">The poverty trap can also act to increase hidden unemployment. Jobless workers may not apply for jobs because of financial disincentives created by the interaction of the income tax and state benefits system. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Therefore this group of workers are not actually supplying their labour-in effect they are voluntarily unemployed. This type of unemployment can exist even though full employment occurs and the labour market is in equilibrium. Now copy out the diagram on P211 to show this unemployment

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Disequilibium Unemployment

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Real wage (classical) unemployment

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Real wage unemployment a form of dis-equilibrium unemployment and occurs when real wages for jobs are forced above the market clearing level. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Traditionally, trade unions are seen as the institutions causing this type of unemployment although the importance of trade unions in Asia is not terribly significant. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Classical unemployment is thought to be the result of real wages being above their market clearing level leading to an excess supply of labour. Some economists believe that the introduction of a national minimum wage may create some classical unemployment especially where international competition from low-labour cost producers is severe. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Watch this video for a full explanation of this <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">media type="youtube" key="CkKhBYPzEWM" height="315" width="420"

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Now draw the diagram to explain Real wage unemployment. ( Figure 20.3 on P 222)

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Demand deficient (or cyclical) unemployment

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Cyclical unemployment is seen by Keynesian economists as involuntary unemployment as it is due to a lack of aggregate demand for goods and services. This is also known as Keynesian "demand deficient" unemployment and is associated with the transition of the economy through the business cycle. When there is an economic recession we expect to see a rising level of unemployment because of plant closures and worker lay-offs. This is due to a fall in demand leading to a contraction in output across many industries. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Although demand deficient unemployment is usually associated with economic recessions it can also exist in the long run when the economy is constantly run below capacity. As the economy recovers from a downturn, we expect to see the problem of cyclical unemployment decline.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Classical economists argue that this type of unemployment does not really exist as it is in reality no different from real wage unemployment. Classical economists argue that it is not Demand deficiency that is the cause of this, but the fact that workers’ wages do not fall in response to this fall in AD, that is the real cause. This distinction is most important as it influences the responses that the different economists have to unemployment. Keynesians would respond to Demand deficient unemployment by increasing AD, whilst Classical economists would focus more on making labour markets more flexible (ie supply-side policies). <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Now draw the diagrams on P222. Note that wages do not fall due to the fall in D for Labour. This is because wages are “sticky- downwards”

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Test you understanding: This is a fun activity that you can do in groups. Download this document and match the types of unemployment with the descriptions and the diagrams.



<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Then go to the Economist link at:

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<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Why are so many people not working in Europe?

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">You need to log on for this <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Name: oldfieldecon@hotmail.com <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Passw: kings

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<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Plenary Activity: <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px; line-height: 0px; overflow: hidden;">



<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">And another data response question on unemployment etc.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Summary notes from the book:

=<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Interesting links on unemployment courtesy of tutor2u: =

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|A broader measure of unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|A Case Study in Labour Mobility - 50 Jobs in 50 Weeks] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|A million jobs at risk from spending cuts] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|A selection of revision notes on unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|AS Macro Revision: Cyclical unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Assorted Links (21 Jan 2010) - Focus on Unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Businesses call for youth jobs subsidy] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Corus culls jobs as global steel output slumps] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|David Blanchflower on Unemployment Policies] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Hundreds of jobs lost as Bosch moves from Wales to Hungary] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Inflation or Unemployment - Which is Worse] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Q&A: Is roadbuilding an effective way of reducing unemployment?] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Q&A: Why is youth unemployment so high?] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Questioning the natural rate of unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Resource for teaching unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Revision Presentation on Unemployment in the UK] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Revision: Consequences of Unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Revision: Frictional and Structural Unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Revision: Measuring Unemployment] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Skills and jobs mismatch – update] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|When a town’s unemployed chase the same jobs] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Who is hit hardest by unemployment?] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Youth Unemployment and the Recession]

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">media type="custom" key="8555646"

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">The chart shows long term unemployment as a percentage of total unemployment for each group in the UK