Unemployment. Aims and Objectives Aim: Understand types of unemployment Objectives: Define 2 measures of unemployment Explain current trends in.

Unemployment

Aims and Objectives

Aim:Understand types of unemployment

Objectives: Define 2 measures of unemploymentExplain current trends in UK & EUAnalyse causes of unemploymentEvaluate social costs of unemployment

Starter

Number of people willing and able to work but unable to find work.

http://www.bbc.co.uk/news/uk-17043305

2.67 million 8.4%

Unemployment

LFS & Claimant Count

LFS• Includes people who have looked for

work in the past month and are able to start work in two weeks.

Claimant Count• Includes people able to claim JSA.

Equilibrium Unemployment

• ALF = aggregate labour force of a nation.

• ASL = aggregate supply willing to work at W1.

• Unemployment = difference between ALF and ASL.

• Q2-Q1

ASL ALF

W1

ADL

Q1Q2

EMPLOYMENT

RWR

Re-create on your whiteboards and explain.

Replacement Ratio

• In the case of a low paid worker loosing their job the replacement ratio is one factor influencing time spent searching for a new job.

Replacement Ratio = disposable income out of work disposable income in work

• High level of benefits disincentives employment

• Ratio of 1 means receive same on benefits as would if employed.

• High ratio = unemployment trap

Replacement RatioAge Range JSA Maximum Amount

Under 25 £53.45pw

Over 25 £67.50pw

Couple £105.95pw

• Beauty Technician Job – Barton Le Clay £6.08ph 16 hours per week

• Calculate Replacement Ratio

• £53.45/£97.28 = 0.55

• The benefits received when unemployed 'replace' 55% of the worker's disposable income when in work.

Replacement RatioAge Range JSA Maximum Amount

Under 25 £53.45pw

Over 25 £67.50pw

Couple £105.95pw

• Over 25

• Care Assistant Dunstable £8.07ph25 hours pw

• Calculate Replacement Ratio

• £67.50/£201.75 = 0.33

• The benefits received when unemployed 'replace' 33% of the worker's disposable income when in work.

For which job is there more incentive to remain on benefits and unemployed?

Types of Unemployment

Task• Can you remember the five types of

unemployment in an economy?

Structural UnemploymentUnemployment due to

declining industries such as mining or ship building

Frictional UnemploymentPeople who are unemployed

between jobs

Cyclical UnemploymentGeneral unemployment

which follows the business cycle

Seasonal Unemployment

Unemployment from seasonal jobs, e.g. Fruit

picking

Technological Unemployment

Unemployment due to technological

advancements.

Cyclical Unemployment

• Arises during downturn/recession

• Fall in AD actual GDP lies below potential GDP – negative output gap

• Labour derived demand

• Unemployment rises

AD2 LRAS

P1

AD1

Y1Y2

PRICE LEVEL

REAL GDP

Classical Unemployment

• Wage rate increases

• More workers supply themselves QS

• Firms demand QD

• Unemployment QS-QD

ASL

ADL

Real Wage

Employment

Q1QD QS

W1

W2

Armies of the Unemployed

• What may be the social costs in the EU of high unemployment?