Economics Chapter 2 Unemployment. A person is unable to find a job although he is able and willing to work. Jobless ≠ Unemployed Population Labour force.

Economics

Chapter 2

Unemployment

Unemployment A person is unable to find a job although he is able

and willing to work.

Jobless ≠ Unemployed

Population

Labour force

Non-labour force

Employed population

Unemployed population

Labour force (The Census and Statistics Department of Hong Kong)

Labour force means

1. Employed population All people aged 15 or above who work for payment and

profit.

Including Self-employed people 自僱人士 (e.g. newspaper stand owner)

Employers 僱主 (e.g. the boss of a company)

Employees 僱員 (e.g. the salesperson of a shop)

Family members working for a family business without pay

Paid apprentices 受薪學徒

Labour force (The Census and Statistics Department of Hong Kong)

Labour force means

2. Unemployed population All people aged 15 or above who are jobless

Do not work for payment or profit

Looking for jobs

Able to work anytime.

Labour force (The Census and Statistics Department of Hong Kong)

In short, labour force refers to residents in a region who are able and willing to work anytime.

Labour force = Employed population + Unemployed population

Non-labour force

Non-labour force means all residents who are not classified as employed or unemployed.

Including: People aged under 15

Retirees (no plan to work to earn incomes)

Permanently disabled (incapable to work)

Housewives (no plan to work to earn incomes)

Full-time students (no plan to work to earn incomes)

HK’s situation

At the end of 2010

Population = 7,097,600 (approximate)

Jan – Mar, 2011

Labour force = 3,701,800 (approximate) Employed = 3,577,300

Unemployed = 124,500

Non-labour force = 3,395,800 (approximate)

Check point (Textbook p.49)

Classified as unemployed?

Reason

Mr. Chu can’t work permanently after an accident and relies on the CSSA.

Yes / No - Unable to work

After university graduation, Miss Chan works as a private tutor at home.

Yes / No- Working for

payment

Mrs. Wong, a retiree, provides community services and volunteer work.

Yes / No- Not belong to

labour force

Ted, aged 16, has not been able to find a job since graduation from secondary school.

Yes / No- Jobless- Able and

willing to work

Who is classified as unemployed?

Types of unemployment

1. Frictional Unemployment

a temporary condition.

individual is out of his current job and looking for another job.

The time period of shifting between two jobs is known as frictional unemployment.

2. Structural Unemployment:

structural changes within an economy.

mismatch of skilled workers in the labor market.

Individual has

low geographical mobility

low occupational mobility

technological change

Types of unemployment

3. Classical Unemployment

also known as the real wage unemployment or

disequilibrium unemployment.

when trade unions and labor organization bargain for higher wages, which leads to fall in the demand for labour. 

4. Cyclical Unemployment:

recession

aggregate demand for goods and services decreases

demand for labor decreases

Types of unemployment

5. Seasonal Unemployment:

due to the seasonal nature of the job is known as seasonal unemployment.

e.g. tourism industries, fruit picking industries

Seasonal unemployment in HK

May and July: Unemployment

A large number of graduates (universities and secondary schools) join the labour market.

Students seek for part-time job during summer vacation.

Fresh graduates are hard to find work.

September: Unemployment

Some graduates return back to school for further studies

Part-time students have school re-open

Unemployment rate

Unemployment rate =

YearLabour force(thousand)

Employed population(thousand)

Unemployed population(thousand)

Unemployment rate

2009 3,000 2,850 150 5%

2010 3,200 2,976 224 7%

2011 3,500 3,300 200 5.71%

Unemployment rate in HK

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

HK Unemployment rate (1997-2010)Unemployment rate (%)

Year

1998Financial Crisis

2001911 Terrorist Attack

2003SARS Outbreak

2003 onwardCEPA

2008Financial Tsunarmi

Underemployment

An employed person

Involuntarily works less than 35 hours a week

Able to work more

Underemployment population 就業不足人口 Underemployment rate 就業不足率

Underemployment rate =

Cost of unemployment

Cost to the unemployed

No income Low living standard to individual / family

Mental problem Stress and frustration

low self-esteem

bad family relationship

Unable to accumulate human capital e.g. experience

Less able to work or find a job

Long-term unemployment

Cost of unemployment

Cost to the society Losses in output

Labour resources are not fully utilized Not full employment No maximum national income

Hinder the growth in productivity Unable to accumulate experience low productivity

Social / Criminal problems Domestic violence Divorce Emotional problem Theft or other criminal cases

Discourage social harmony Hostility to the rich

Cost of unemployment

Financial assistance to unemployed / Unemployment benefits

A kind of transfer payment. (not cost to the society)

Unemployment benefits

Increase in gov’t expenses Social welfare expenses, C.S.S.A.

Subsidies on vocational training

Increase the gov’t financial burden

Decrease in gov’t income Less salaries tax revenue

Inadequacy of unemployment rate The unemployment rate can’t fully reflect changes in

economic welfare.

Unemployment rate over-estimates the problem if False report of unemployment

Some people may give up job for financial assistance

Value of leisure time Unemployed more leisure time beneficial

Frictional unemployment Looking for better job

Unemployment rate under-estimates the problem if Underemployment

Unemployment rate can’t show the problem of underemployment

Should the gov’t increase unemployment assistance?

Individuals For: Unemployed can have wealth redistribution Better living

Against: Taxpayers need to share higher tax burden

Society For: Fewer personal / family / social problems

Against: incentive to report unemployment

Economy Against: incentive to work or find a job

tax rate to support financial assistance

cost of investigation

Questions on unemployment

Which of the following is regarded as unemployment?

A. Ken is a full-time student.

B. Fanny is unable to find a job after quitting her previous position.

C. Frankie is not looking for a job because he is permanently disabled.

D. Siu Mei is working in a family tuck shop without pay.

Answer: B

Which of the following belongs to the labour force?

A. A retiree.

B. A full-time housewife.

C. A university graduate who is jobless and has been looking for a job since graduation.

D. A student who studies in Japan returns to Hong Kong during the holidays.

Answer: C

Questions on unemploymentStudy the following data about employment in an economy:

Calculate the unemployment rate and the underemployment rate.

Answer:

The unemployment rate =

= = 10%

The underemployment rate =

= = 7%

  Number (thousand)

Employed 900

Unemployed 100

Under-employed 70

Questions on unemployment

If the underemployed population decreases and the labour force increases, which of the following conclusions can we draw?

(1) The unemployed population will increase.

(2) The underemployment rate will decrease.

(3) The unemployment rate will decrease.

A. (2) only B. (3) only C. (2) and (3) only D. (1), (2) and (3)

Answer: A

If the employed population decreases and the labour force increases,

(1) the unemployment rate must increase.

(2) the unemployed population must increase.

(3) the underemployment rate will decrease.

A. (1) and (2) only B. (1) and (3) only

C. (2) and (3) only D. (1), (2) and (3)

Answer: A

Questions on unemployment

John plans to quit his job and further his studies. Explain whether he will be classified as unemployed. (2%) 

Answer:

Unemployment refers to a person who is willing and able to work but does not find a job. (1%)

John is not unemployed because he is not going to find a job. (1%)

John is unemployed and is receiving unemployment benefits. Explain whether unemployment benefits are the cost of unemployment to society. (2%) 

Answer:

No. Unemployment benefits are only a kind of transfer payment. (1%)

John receives the money that is paid by the government. Society as a whole does not bear any cost. (1%)

Questions on unemployment

The following is the data of a country.

a. Fill in the blanks in the table. (3%)

b. State TWO costs of unemployment to society. (4%)

Answer:

- Reduced social output.

- Reduced overall human capital accumulation, leading to slower in productivity growth of the economy.

- Increased crime rate.

Year The employed The under-employed

The unemployed

The unemployment rate

2007 9,000 500 750 7.7% 

2008 9.200 450 800 8%

2009 10,500 300  1,500 12.5%