A2 Economics Chapter 16: Employment and Unemployment 10.09.2015 Mr. Miah.

A2 Economics Chapter 16: Employment

and Unemployment10.09.2015

Mr. Miah

History to Employment in UK

O From the early 90s, unemployment fell continuously from a peak of 3 million to half that amount by early 2008.

O Indicating a huge rise in employment and decrease in unemployment during the course of 16 years.

Less of a problem for the UK?

Recession hits UK Economy

O By early 2009, recession hits UK economy once again.

O Unemployment, as a result, climbed to 2.3 million by March 2009.

O Similar growth in unemployment in high-income countries such as USA, Germany, France and others – was also experienced.

BEGGING THE QUESTION:The government’s macroeconomic objective: achieve full employment (or low unemployment), is undoubtedly never achievable! Discussion.

Post-recession in the UK

O Unemployment continued to grow after the recession (as it usually does) – Quick tester: How would this be measured?

O In Oct. 2011 unemployment peaked at 2.68 million, but then falling to 2.51 million in April 2011.

O The coalition government currently maintains unemployment is a crucial aspect of their work; employment in the private sector has grown significantly.

http://www.bbc.co.uk/news/uk-33877755

What is full employment?

O Two types of definitions:1. Beveridge definition – Occurring when unemployment falls to 3% of the labour force. – What’s the criticism of this definition?

2. Free-market definition – Occurs at the market-clearing real wage rate; where no. of workers ‘wishing’ to work equals no. of workers employers ‘wish’ to hire.

O Definition: The level of employment at which all those who wish to work have found jobs; except for those frictionally unemployed. (Wall, A-Z Economics)

Guess the reasons for unemployment

O Frictional unemployment

O Structural unemployment

O Seasonal unemployment

O Cyclical unemployment

A casual form of being unemployed; workers are laid-off on a short-term basis. Also refers to fluctuations in weather conditions or demand.

Unemployment caused by workers being between jobs (time in-between one job-to-another).

Collapse in business and consumer confidence results in fall of AD, therefore deficient AD, results in cyclical unemployment.

Unemployment due to operational decline of industries, hence redundant and thus not skilled enough for other progressive jobs.

Equilibrium unemployment

O The level of unemployment when the economy’s aggregate labour market is in equilibrium.

O Frictional unemployment and structural unemployment; redundant workers from declining industries, but who lack skills to enter a growing industry – both make up equilibrium employment.

Natural rate of unemployment (NRU)

O Definition: It is the unemployment rate when unemployment is restricted to its equilibrium level.

O Similar to equilibrium unemployment, NRU measures aggregate labour market – but is expressed as a rate of unemployment as oppose to level.

Difference between Equilibrium unemployment and NRU

RecapO History of UK unemployment and the

recession

O Full employment definition

O Key reasons for unemployment

O Equilibrium and Natural Rate of Unemployment (NRU)

Today

L.OO Understand the employment

rate and the main causes of unemployment.

Measuring employment and unemployment

O The employment rate strongly correlates with the ‘economic cycle’; rising in recovery and boom phases, but falling when growth slows down.

O However, the employment and unemployment cycles usually lag a few months behind the output cycle.

O As a result, employers hang on to their best workers at the beginning of a downturn. Why would employers do this? Consequence?

O Similarly, at the beginning of a recovery period, employers offer overtime before deciding to recruit new workers. What’s the benefit of this?

Draw and annotateO Figure 16.3 – Changes in the UK

employment rate.

O Critically look at the figures, analyse then move onto evaluating what may have caused unemployment (we learnt the factors in our last lesson) that have resulted in in the change from Apr 2008 to Apr 2013.

There are two methods used

to calculate UK unemployment

1. The Labour Force Survey

O Most favoured by government

O Uses Internationally recognised definitions and is recommended by International Labour Organisation (ILO)

O Quarterly survey of 60,000 households

O People counted as unemployed if actively seeking work (looking within last 4 weeks).

2. The claimant countO A monthly check measuring the number of

people claiming unemployment-related benefits.List the benefits in this categoryO A by-product of the admin system for paying

benefits to unemployed people; i.e. Jobseeker’s Allowance.

O Criticism: does not provide accurate measure of true unemployment – HOW?

O Free-economists argue claimant count overstates true unemployment; not genuinely looking for work or unemployed due to undeclared jobs.

Costs and Consequences of Unemployment

O “Unemployment is a waste of human capital” – Is this wholly true? How can one justify this statement?

O Free-market economists argue a certain amount of unemployment is necessary to make the economy function better – REALLY! What are your thoughts?

O WHY?By providing downward pressure on wage rates, unemployment reduces inflationary pressures – WHAT DO THEY MEAN BY THIS? NEGATIVES OF THIS.

Consequence to the unemployed person

O Unemployment obviously bad for the unemployed and their family.

O Low incomes that accompany unemployment, tend to by default, lead onto a low standard of living.

THOUGHT PROVOKING:O Have the unemployed become

marginalised in society?

LossesO Self-esteem is reduced and sometimes shatteredO Families suffer from increased health risksO Greater stressO A reduction in the quality of dietO An increased risk of marital break-upO Social exclusion from loss of work + income

VIDEOO The longer the duration of unemployment the

greater the loss.

O Pairs: HOW MUCH OF THIS DO YOU AGREE ON? AND CAN EMPLOYMENT CHANGE ALL OF THIS? Discuss.

Video on unemployment in the UK: “A job to get work”

QuestionsO What is the vision from the government for the

unemployed?

O State issues the unemployed face.

O What initiatives are helping reduce unemployment?

O Identify, if any, causes of unemployment.

Q. Assess the costs and benefits of unemployment.

Assess:Analyse both sides and form a

conclusion

Are there any benefits to Unemployment?

O Creates extra leisure time

O A level of frictional unemployment helps = ‘probably’ acceptable; growing firms can dip into frictional unemployment market to meet labour needs.

O Rising unemployment decreases inflation

Appropriate policies to reduce unemployment

O Important to identify where the root cause lies = demand or supply-side?

O Late 90s and early 2000s, generally agreed the dominant cause of unemployment was on supply-side of economy.

O Free-market argue: Peer-readO Keynesian argue: Peer-read