unemployment a level essay

Unemployment | A-Level Economics Model Essays

Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives (25 marks).

Unemployment is the percentage of people who are willing and able to work but are unable to find work. Trade-offs from lower unemployment can include some of the other policy objectives , such as a stable price level and a stable balance of payments on the current account.

If there is lower unemployment, it is likely that AD has shifted to the right. This is especially the case if cyclical unemployment has fallen, as it is the unemployment caused by a lack of AD in the economy, for example during the financial crisis or COVID. If AD shifts to the right, real GDP rises and unemployment falls, but there would be an increase in price levels, from P1 to P2, as seen below.

Inflation (rise in average price levels) happens because higher AD (C+I+G+X-M) is linked to more spending from consumers, firms and the government. For example, if more people have jobs then more people will have a higher disposable income, which will lead to greater spending in the UK economy. Also, to reduce cyclical unemployment in the first place, it is possible that the government introduced fiscal policy, which means more government spending, also leading to higher AD and higher inflation. Also, if there is higher inflation, relative prices will be lower abroad, so more people may buy goods and services from abroad, leading to higher imports and lower exports (as goods are more expensive in the UK). This means that the current account deficit may also worsen due to lower unemployment. Overall, lower unemployment has trade-offs with the inflation and balance of payments objectives.

In evaluation, we only considered reducing cyclical unemployment by increasing demand so that doesn't mean that trade-offs are inevitable. Also, if there is a high amount of cyclical unemployment, there may have been a recession before, suggesting we are in a negative output gap and have high spare capacity. Increasing employment from a low output does not cause a large increase in inflation, as inflation was already low.

Unemployment can also be reduced in another way without causing any major trade-offs. This can be done by using supply-side policies. Supply-side policies are policies that aim to increase LRAS by improving incentives. For example, if new infrastructure and roads are built, then this can lead to an increase in LRAS. This is the case in real life with HS2, which itself creates jobs to implement, but increases mobility of labour even further by easily allowing people to travel across the UK. If the government are able to increase LRAS at the same time that AD rises, then this will reduce the strain on the economy as there would be greater capacity and productive potential.

The diagram above shows that we would be able to increase employment from y1 to y2, while only seeing a small rise in inflation because the supply-side policies can complement short-run economic growth by increasing capacity and reducing strain on price levels. Overall, there would be little conflict between macroeconomic objectives.

However, it is important to consider that supply-side policies are not easy to implement as they require a lot of spending and time. This means there is a high opportunity cost, which can lead to worse outcomes in relation to health, policing, or equality. Also, supply-side policies can take years to put in place, with HS2 being planned to launch after roughly 10 years.

Overall, lower unemployment can often lead to other issues such as inflation or worsened balance of payments but this is not inevitable, as the conflict can be prevented by using supply-side policies.

Intro: definitions and objectives

AD goes up. Diagram. Main trade-off is inflation. Inflation can lead to more imports.

We only considered reducing cyclical unemployment (AD going up), we don't know where the economy was before (was there spare capacity?)

Argument 2: lower UE does NOT always lead to trade offs e.g. ...

Overall, falling unemployment often leads to trade-offs such as higher inflation but this is not inevitable, for example (refer to something that you said).

Causes & Impact of Unemployment

Causes of unemployment.

Both demand-side and supply-side factors affect the levels of employment and unemployment in an economy:

Demand-side factors

• Demand-side in the labour market refers to the demand for labour from firms.
• Health of firms, e.g. profit levels, demand for goods.
• Confidence of firms.
• Overall strength of economy.
• Government intervention to encourage hiring.
• Level of labour market regulation/costs of hiring.

Supply-side factors

• Supply-side in the labour market refers to the supply of labour by workers.
• Labour market flexibility, e.g. trade union strength.
• Skills of workers.
• Geographic mobility of workers.
• Occupational mobility of workers.

Consequences of Unemployment

Persistent high levels of unemployment can have many negative effects upon an economy and the workers within it:

Living standards and inequality

• High levels of unemployment may also increase inequality within an economy - those without a job 'falling behind' those who are earning and also potentially disadvantaging future generations who grow up in communities without work.

Fiscal issues

• 'Automatic stabilisers', such as unemployment benefits, would increase government spending when unemployment is high.
• The government would also receive less income tax and so would not have as much revenue to invest in public services to address the problems caused.

Social issues

• High levels of unemployment can also be associated with increased rates of crime and other such activities.
• These cost the government through expenditure on policing and also give rise to negative externalities.

Reduced output

• If unemployment is not due to workers being replaced with capital, it is likely that real GDP will fall with increased unemployment.
• Reduced confidence and multiplier effects could magnify the negative impact upon the economy.

1 Introduction to Markets

1.1 Nature of Economics

1.1.1 Economics as a Social Science

1.1.2 Positive & Normative Economic Statements

1.1.3 The Economic Problem

1.1.4 Resources

1.1.5 Production Possibility Frontiers

1.1.6 Specialisation & Division of Labour

1.1.7 Types of Economies

1.1.8 End of Topic Test - Nature of Economics

1.1.9 Application Questions - Nature of Economics

1.2 How Markets Work

1.2.1 Rational Decision Making

1.2.2 Demand

1.2.3 Elasticities of Demand

1.2.4 Elasticities of Demand 2

1.2.5 Elasticity & Revenue

1.2.6 Supply

1.2.7 Elasticity of Supply

1.2.8 Price Determination

1.2.9 Price Mechanism

1.2.10 Consumer & Producer Surplus

1.2.11 Indirect Taxes & Subsidies

1.2.12 A-A* (AO3/4) - Taxing Prices or Quantities?

1.2.13 Alternative View of Consumer Behaviour

1.2.14 End of Topic Test - Markets

1.2.15 A-A* (AO3/4) - Markets

2 Market Failure

2.1 Market Failure

2.1.1 Types of Market Failure

2.1.2 Externalities

2.1.3 The Deadweight Welfare Loss of Externalities

2.1.4 A-A* (AO3/4) - The Externalities of Education

2.1.5 Public Goods

2.1.6 Information Gaps

2.1.7 End of Topic Test - Market Failure

2.1.8 Application Questions - Market Failure

2.2 Government Intervention

2.2.1 Government Intervention in Markets

2.2.2 Subsidies & Price Controls

2.2.3 Pollution Permits & Regulation

2.2.4 A-A* (AO3/4) - European Emissions Trading

2.2.5 State Provision & Information Provision

2.2.6 Government Failure

2.2.7 End of Topic Test - Government Intervention

2.2.8 A-A* (AO3/4) - Government Intervention

3 The UK Macroeconomy

3.1 Measures of Economic Performance

3.1.1 Measuring Economic Growth

3.1.2 National Income Data

3.1.3 Inflation

3.1.4 Causes of Inflation

3.1.5 Consequences of Inflation

3.1.6 Employment & Unemployment

3.1.7 Causes & Impact of Unemployment

3.1.8 A-A* (AO3/4) - Hysteresis

3.1.9 Balance of Payments

3.1.10 Current Account Deficit & Imbalances

3.1.11 End of Topic Test - Economic Performance

3.1.12 Application Questions Macroeconomy

3.2 Aggregate Demand

3.2.1 Aggregate Demand

3.2.2 Consumption

3.2.3 Investment

3.2.4 Government Expenditure

3.2.5 Net Trade

3.2.6 End of Topic Test - Aggregated Demand

3.2.7 Application Questions - AD

3.3 Aggregate Supply

3.3.1 Aggregate Supply

3.3.2 End of Topic Test - Aggregated Supply

3.3.3 A-A* (AO3/4) -Aggregate Supply

3.4 National Income

3.4.1 National Income

3.4.2 Injections & Withdrawals

3.4.3 Equilibrium Level of Real National Output

3.4.4 Multiplier Effect

3.4.5 End of Topic Test - National Income

3.4.6 Application Questions - National Income

3.5 Economic Growth

3.5.1 Causes of Economic Growth

3.5.2 Output Gaps

3.5.3 Business Cycle

3.5.4 Impact of Economic Growth

3.5.5 End of Topic Test - Economic Growth

3.5.6 A-A* (AO3/4) - Growth

4 The UK Economy - Policies

4.1 Macroeconomic Objectives & Policies

4.1.1 Possible Objectives

4.1.2 Demand-Side Policies - Monetary

4.1.3 Demand-Side Policies - Monetary 2

4.1.4 A-A* (AO3/4) - The Future of Interest Rates

4.1.5 Demand-Side Policies - Fiscal

4.1.6 Demand-Side Policies in 2007-08

4.1.7 Strengths & Weaknesses of Demand Side

4.1.8 Supply-Side Policies

4.1.9 Supply-Side Policies 2

4.1.10 Conflicts Between Objectives

4.1.11 A-A* (AO3/4) - Conflicting Incentives

4.1.12 Phillips Curve

4.1.13 End of Topic Topic - Policies & Objectives

4.1.14 Application Questions - UK Policies

5 Business Behaviour

5.1 Business Growth

5.1.1 Size & Types of Firms

5.1.2 Business Growth

5.1.3 Pros & Cons of External Expansion

5.1.4 Demergers

5.1.5 End of Topic Test - Business Growth

5.1.6 A-A* (AO3/4) - Business Growth

5.2 Business Objectives

5.2.1 Business Objectives

5.2.2 End of Topic Test - Business Objectives

5.2.3 Application Questions - Business Objectives

5.3 Revenues, Costs & Profits

5.3.1 Revenue

5.3.2 Costs

5.3.3 Economies & Diseconomies of Scale

5.3.4 Profits

5.3.5 Profits 2

5.3.6 End of Topic Test - Revenue, Costs & Profits

5.3.7 A-A* (AO3/4) - Revenue, Costs & Profit

6 Market Structures

6.1 Market Structures

6.1.1 Efficiency

6.1.2 Perfect Competition

6.1.3 Perfect Competition 2

6.1.4 Monopolistic Competition

6.1.5 Oligopolies

6.1.6 The Prisoner's Dilemma

6.1.7 Collusion in Oligopolistic Markets

6.1.8 A-A* (AO3/4) - Which Factors Affect Collusion?

6.1.9 Monopolies

6.1.10 Price Discrimination

6.1.11 Monopsony

6.1.12 A-A* (AO3/4) - Models in Economics

6.1.13 Contestability

6.1.14 Benefits of Contestability

6.1.15 End of Topic Test - Market Structures

6.1.16 Application Questions - Market Structures

6.1.17 A-A* (AO3/4) - Cereal Collusion

6.2 Labour Market

6.2.1 Demand for Labour

6.2.2 Supply of Labour

6.2.3 Labour Market Imperfections

6.2.4 A-A* (AO3/4) - Labour Productivity & Unemployment

6.2.5 A-A* (AO3/4) - What Level of Unionisation is Good?

6.2.6 Wage Determination

6.2.7 Elasticity of Labour Supply & Demand

6.2.8 Intervention in Setting Wages

6.2.9 End of Topic Test - Labour Market

6.2.10 A-A* (AO3/4) - Labour Markets

6.3 Government Intervention

6.3.1 Reasons for Government Intervention

6.3.2 Government Promotion of Competition

6.3.3 Usefulness of Competition Policy & Examples

6.3.4 A-A* (AO3/4) - Modern Competition Policy

6.3.5 Privatisation

6.3.6 Government Regulation

6.3.7 A-A* (AO3/4) - Nationalisation vs Privatisation

6.3.8 Government Protection of Suppliers and Employees

6.3.9 Impact of Government Intervention

6.3.10 End of Topic Test - Government Intervention

6.3.11 Application Questions - Government Intervention

7 A Global Perspective

7.1 International Economics - Globalisation & Trade

7.1.1 Globalisation

7.1.2 Globalisation for LEDCs

7.1.3 Globalisation for MEDCs

7.1.4 Specialisation & Trade

7.1.5 Pattern of Trade

7.1.6 Terms of Trade

7.1.7 Trading Blocs

7.1.8 UK, EU & WTO

7.1.9 End of Topic Test - Globalisation & Trade

7.1.10 A-A* (AO3/4) - Globalisation & Trade

7.2 International Economics - Currency

7.2.1 Merged Currency

7.2.2 Restrictions on Free Trade

7.2.3 Arguments for Protectionism

7.2.4 Arguments Against Protectionism

7.2.5 Balance of Payments

7.2.6 Balance of Payments 2

7.2.7 Floating Exchange Rates

7.2.8 Fixed Exchange Rate

7.2.9 International Competitiveness

7.2.10 End of Topic Test - International Economy

7.2.11 Application Questions - International Economics

8 Finance & Inequality

8.1 Poverty & Inequality

8.1.1 Absolute & Relative Poverty

8.1.2 Inequality

8.1.3 Inequality 2

8.1.4 Lorenz Curve

8.1.5 Government Policy on Poverty

8.1.6 End of Topic Test - Poverty & Inequality

8.1.7 A-A* (AO3/4) - Inequality & Poverty

8.2 Emerging & Developing Economies

8.2.1 Measures of Development

8.2.2 Factors Influencing Growth & Development

8.2.3 Barriers to Development

8.2.4 Barriers to Development 2

8.2.5 A-A* (AO3/4) - The Bottom Billion

8.2.6 Development Strategies

8.2.7 Interventionist Strategies

8.2.9 International Institutions

8.2.10 International Institutions 2

8.2.11 End of Topic Test - Emerging & Developing

8.2.12 Application Questions - Developing Countries

8.3 The Financial Sector

8.3.1 Role of Financial Markets

8.3.2 Market Failure in the Financial Sector

8.3.3 Role of Central Banks

8.3.4 End of Topic Test - The Financial Sector

8.3.5 A-A* (AO3/4) - Financial Sector

8.4 Role of the State in the Macroeconomy

8.4.1 Public Expenditure

8.4.2 Taxation

8.4.3 Public Sector Finances

8.4.4 End of Topic Test - Role of the State

8.4.5 Application Questions - Role of the State

9 Examples of Global Policy

9.1 International Policies

9.1.1 Global Debt & Deficit Policies

9.1.2 Poverty & Inequality Policies

9.1.3 Changes in Interest Rates

9.1.4 Competitiveness Policies

9.1.5 End of Topic Test - International Policies

9.1.6 A-A* (AO3/4) - International Policies

9.2 Policy Responses to Shocks

9.2.1 International Tax Policies

9.2.2 Problems for Policymakers

9.2.3 End of Topic Test - Policy Responses

9.2.4 Application Questions - Policy Responses

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Employment & Unemployment

A-A* (AO3/4) - Hysteresis

Unemployment

Definitions of Unemployment

• Unemployment Rate. This is the % of people in the labour force without a job but  registered as being willing and available for work
• Labour Force  Those people holding a job or registered as willing and able to work Therefore this is the number employed plus number unemployed (but actively seeking work)
• Participation Rate The % of the population of working age declaring themselves to be in the Labour Force. This will exclude groups such as long-term disabled, women bringing up children and students

The participation rate is a similar concept to that of ‘economically active’.

See also: definition of unemployment

UK Unemployment stats

• Latest UK unemployment stats
• EU unemployment

Revision notes on unemployment

• Costs of Unemployment
• Measuring Unemployment
• Causes of Unemployment
• Policies to reduce unemployment
• Phillips Curve
• Natural Rate of Unemployment

Causes of unemployment

See:  Causes of Unemployment

Unemployment Essays

Why is Eurozone unemployment higher than UK/US?

Trade off between unemployment and inflation

Is there a trade-off between unemployment and inflation?

Natural Rate of unemployment

• Explain what is meant by Natural Rate of Unemployment?

Types of unemployment

Costs of unemployment

• Should the main macroeconomic aim of the Government be full employment?
• Notes on Inflation
• Fiscal Policy
• Recovering from recession

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• Practice Exam Questions

Unemployment and Policy Trade-Offs (Revision Essay Plan)

Last updated 4 May 2019

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Here is a revision essay plan on this title: “Evaluate the view that falling unemployment inevitably has trade-offs with other macroeconomic objectives. Discuss with reference to a country or countries of your choice.”

KAA Point 1

Falling U – may cause an acceleration in wage inflation in labour market – leads to a rise in cost-push and demand-pull inflationary pressures – this is a trade-off suggested by the short-run Phillips Curve analysis. Bargaining power of workers rises + skilled labour shortages & increased demand for raw materials and components can all drive variable costs higher – inward shift of SRAS, leading to a higher rate of inflation.

EVAL Point 1

Not automatic that inflation will rise. Improved supply-side flexibility of the labour market might have caused a fall in the NAIRU (non-accelerating inflation rate of unemployment) – this means that U can fall further without threatening rising wage inflation. External factors (e.g. lower commodity prices, impact of global competition) can also act as off-setting factors even if wages are rising more quickly.

KAA Point 2

Falling U – leads to rising real wages – increased household incomes – causes surge in demand for imports of goods and services – especially if the marginal propensity to import is high – in the absence of offsetting factors, a rise in M will lead to a worsening of the current account of the BoP. E.g. unemployment in UK now less than 4%, in 2016 the UK ran a record current account deficit of more than 5% of GDP.

EVAL Point 2

Falling U might be result of improved supply-side performance e.g. increased labour productivity which makes UK export industries more competitive. Or export sales might have grown because of a depreciation of the exchange rate (e.g. 2016) which (assuming Marshall-Lerner condition holds) will improve the net trade balance whilst also stimulating output and employment in sectors such as cars and tourism.

FINAL CONCLUSION

Phillips Curve for the UK seems to have flattened i.e. improving trade-off between unemployment and inflation. UK might be able to get close to full-employment and stay within the 2% inflation target. But weak productivity and low investment (17% of GDP) mean that strong GDP growth often associated with a worsening of the external trade accounts.

• Phillips Curve

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• Revision notes >
• A-Level Economics Revision Notes >
• Macroeconomics

Employment & Unemployment - A-Level Economics

Employment & unemployment.

Unemployment is another important aspect of economic performance.

Table of Contents

Unemployment indicates that the economy is working below its productive capacity  (inside its PPF), and that more could be produced if more people are drawn into work.

Also, unemployment imposes costs on the economy, and in terms of standard of living unemployment is damaging.

An unemployed person is classified as a person who does not have a job but is actively seeking work and is ready to begin work within two weeks.

The unemployment level is the number of unemployed people.

The unemployment rate is the proportion of unemployed people relative to the size of the workforce.

The workforce consists of the employed and unemployed.

How is unemployment measured in the UK?

Ilo unemployment rate (using labour force survey).

The International Labour Organisation (ILO) uses the Labour Force Survey , which is now the official measure used in the UK.

The survey involves interviews and telephone conversation with many households in the UK, asking questions about work. For example, they ask whether anyone in the household has been out of work for 4 weeks and is ready to start within the next 2 weeks.

The ILO Unemployment Rate uses an internationally standardized definition of unemployment, allowing for easy international comparison. However, there are sampling problems and carrying out the survey is time-­‐consuming and costly. In fact, by the time all of the surveys are completed, the data is normally out of date!

Claimant Count of Unemployment

The Claimant Count of Unemployment measures the number of people claiming Jobseeker’s Allowance each month.

The claimant count used to be the main measure of unemployment used in the UK. However, there are problems with this measure:

• People claiming Jobseeker’s Allowance (JSA) have to be actively seeking work,  but many people claim the benefit and are not actively ready for work.
• The count does not include people who are looking for work but are not eligible for unemployment benefit. For example, unemployed people who have savings of over

£16,000  are  not  eligible,  and  neither  are  people  who  have  refused  more  than  3  job offers.

Even though the claimant count is quick and easy in terms of obtaining data, and also allows us to obtain separate data for different counties (therefore allowing local comparison), due to the its problems it has been replaced by the ILO unemployment rate.

N.B. The claimant count is always smaller than the ILO  Unemployment  Rate  because many people are not eligible for JSA.

What are the types and costs of unemployment?

Types of unemployment, real wage unemployment.

Real Wage Unemployment happens when the wage rate is maintained above the equilibrium rate, leading to an excess supply of labour.

The best solution to this is ‘laissez faire; let the market sort itself out’. For example, if people accept lower wages, then the cost of living falls as firms do not need to charge such high prices, so the lower wages soon become acceptable.

However, trade unions and regulations such as the NMW prevent wages falling below a certain point. This leads to real wage unemployment which will not disappear because the wage rate cannot fall.

Demand Deficient Unemployment

This is when there is insufficient aggregate demand in the economy for everyone to have a job. Therefore the economy can be in equilibrium but without everyone having a job.

There are several reasons for demand deficient unemployment:

• Saving-­‐ if people save too much, then spending falls. Less spending means fewer job opportunities. Fewer jobs means more unemployment and even less spending and so the cycle continues. Saving is particularly common during a recession.
• Lack of business confidence-­‐ this reduces investment and increases saving, leading to fewer jobs being available because less is produced.
• Increase in value of currency-­‐ this increases imports and reduces exports, meaning more money leaves the circular flow. Therefore, there is less spending so jobs are reduced yet again.
• Imports from poorer countries-­‐ increased imports from low-­‐wage economies leaks more money from the circular flow, reducing spending in the country further.

External Shocks-­‐ if the price of an inelastic good, such as oil, from abroad increases, consumers have less disposable income, so spending decreases further.

Structural Unemployment

This occurs when the economy is undergoing structural change, so that different types of labour are required. For example, when countries convert from manufacturing to services, those skilled at manufacturing will be left unemployed. Over time, as fewer people are trained in manufacturing and more people are trained in services, the problem will disappear.

Frictional Unemployment

Frictional unemployment is transitional unemployment due to people moving between jobs:  For example, redundant workers or people joining the labour market for the first  time such as university graduates may take time searching to find the work they want at wage rates they are prepared to accept.

A lack of information about new job opportunities increases the ‘search time’. However,  on the whole, frictional unemployment is unavoidable and is therefore not overly  worrying.

Voluntary Unemployment

If the unemployment benefit is not too much lower than the going (equilibrium) wage rate, the opportunity cost of not working is reduced. Therefore some people willingly remain unemployed, pretending to be actively seeking work and still claiming benefits.

Costs of Unemployment

Cost to individuals and dependents.

Unemployment reduces living standards for people and those who depend on them. This can lead to illness and a poor diet (i.e. people begin to live off cheap foods).

Cost to firms

Firms will find that people spend less, so they have to lower prices, which reduces profits.

Cost to government

The government has to pay more Jobseeker’s Allowance and will receive less in the form   of income tax revenue. Also, more social problems will develop (e.g. poverty, ill health), which may require more government investment to fix.

Cost to economy

The  economy  is  in  a  position  within  its  PPF,  so  GDP  is  lower  than  it  can  be.  The  long-­‐ termed unemployed may leave the workforce permanently, leading to a fall in resources and an inward shift of the economy’s PPF.

Advantages of Unemployment

• Firms benefit because workers work harder to keep their jobs, and the firm will not have pressure to pay high wages. Also, there is less risk of strike by workers because people fear for their jobs.
• Firms may be forced to reduce prices due to lower spending, which will reduce inflation

What affects the unemployment rate?

The unemployment rate is a level, not a rate. This is because unemployment rate is the %  of the population unemployed.

Changes in the rate of employment is affected by the following factors:

• School Leaving Age-­‐ a higher school leaving age will reduce employment in the short term, but in the long term it will make school leavers more employable.
• University Fees-­‐ since the increase in fees, fewer students are continuing to university. This will increase employment in the short term, but in the long term it will make people less employable.
• Net migration-­‐ if immigration exceeds emigration, there is a net influx of people into the economy. This increases the size of the workforce, and both employment and unemployment levels rise.
• Job Availability-­‐ the more jobs available, the more employment (generally).

Levels  of  taxes  and  benefits-­‐  high  income  tax  and  high  unemployment  benefit encourage people not to work.

Employment refers to the state of having a job or being employed, whereas unemployment refers to the state of not having a job but actively seeking employment.

The unemployment rate is the percentage of the labor force that is unemployed but actively seeking employment.

The four main types of unemployment are cyclical, structural, frictional, and seasonal. Cyclical unemployment occurs due to fluctuations in the business cycle, while structural unemployment occurs when workers’ skills do not match the available job opportunities. Frictional unemployment occurs when workers are between jobs, and seasonal unemployment occurs when certain industries have predictable seasonal fluctuations in demand.

The natural rate of unemployment is the rate of unemployment that exists when the labor market is in equilibrium and there is no cyclical unemployment. It is also known as the non-accelerating inflation rate of unemployment (NAIRU).

The labor force participation rate is the percentage of the population that is of working age and either employed or actively seeking employment.

Generally, when there is a high level of unemployment, wages tend to decrease as workers compete for a limited number of job opportunities. Conversely, when unemployment is low, wages tend to increase as employers compete for a limited number of available workers.

The government measures unemployment through the use of the labor force survey, which is conducted by the Office for National Statistics (ONS) in the UK. The survey asks individuals about their employment status, including whether they are employed, unemployed, or not in the labor force.

The government can reduce unemployment through a variety of policies, such as monetary policy, fiscal policy, and supply-side policies. Monetary policy can be used to stimulate economic growth and create jobs through the manipulation of interest rates and the money supply. Fiscal policy involves the government increasing its spending or reducing taxes to stimulate economic activity. Supply-side policies focus on increasing the productivity and efficiency of the economy, which can lead to increased employment.

The gig economy refers to a labor market characterized by short-term contracts or freelance work as opposed to permanent jobs. The advantages of the gig economy include flexibility, autonomy, and the ability to earn income without committing to a full-time job. However, the gig economy also has its disadvantages, such as lack of job security, lack of benefits, and the potential for exploitation by employers.

Technology can both create and destroy jobs. The introduction of new technologies can lead to the creation of new industries and job opportunities, while also rendering certain job roles obsolete. However, overall the impact of technology on employment tends to be positive, as technological advancements can increase productivity and lead to economic growth.

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Employment and Unemployment

Definitions.

The__ labour force __(also known as the economically active population) is the number of people of working age who are either in work, or unemployed but actively seeking work. It includes both full-time and part-time workers, and employees and the self-employed. The UK labour force is currently (2017) 33.6 millions (32.14 in work and 1.46 millions unemployed).

__Unemployment __means not in employment or self-employment, but looking for work and being available for work.

__Underemployment __means being in work or self-employed, but not working as many hours as desired. About a quarter of the labour force comprises part-time workers, many of whom would like to work full-time.

The __economically inactive __population refers to people of __working age __(between school leaving age and retirement age) who are not working or looking for work. It includes students, some people with disabilities that prevent them from being able to work, parents looking after pre-school children and people who take early retirement.

Measuring Unemployment

The__ claimant count __is a very narrow measure of unemployment as it just refers to the number of people on unemployment benefits.

ILO measure __(International Labour Organisation) in the U.K. uses data collected by the Labour Force Survey__. This is a monthly survey comprising a questionnaire put to a representative cross section of the population. Over 40,000 households take part - to be counted as unemployed on the ILO measure, a person must fill these criteria:

• Currently not working at all
• Be actively looking for work
• Be available to start work within a fortnight

The ILO measure is generally considered to be more accurate than the claimant count because:

• A lot of people looking for work may not be able to claim benefit, for instance mothers returning to the workforce whose partners/husbands are in work, or older workers already claiming a pension. Others may be eligible but choose not to claim it
• It is based on internationally agreed methodology, so can be used when comparing unemployment rates between countries
• The claimant count can be affected by changes in the rules for claiming benefits. For instance claimants now have to wait several weeks before they are eligible for benefits. During this period they are not registered as unemployed
• The claimant count may include some people who are working in the ‘black economy’ but illegally claiming benefits

Points 1 to 3 leads to a higher ILO measure compared to the claimant count. Point 4 leads in the opposite direction, but is likely to be a smaller number of people. Overall, therefore the ILO measure is greater, by nearly a million people.

There is no single, ‘true’ measure of unemployment . Both the ILO and claimant count do not take account of the following:

• Underemployment – many part-time workers who want full-time work could be thought of as partly unemployed. There has certainly been an increase in part-time rather than full-time jobs in recent years, including those on ‘zero hours’ contracts.
• Discouraged workers – people who would take a job if offered, but because they perceive their prospects as bleak, have given up looking. This can particularly affect older workers and school leavers. In the latter case they may choose to go into higher education when they would really prefer to have a job.
• Short and long term unemployment – Neither measure captures the importance of this. Short term unemployment is defined as a period of less than a year. The majority of unemployed people actually find work within weeks rather than months, but during a prolonged recession, or in parts of the country with structural unemployment (see below) , a much higher proportion of unemployed people become long term unemployed. This causes much greater social and economic problems than short term unemployment (see below).

For these reasons both measures could be argued to under-estimate unemployment, but on the other hand there are some people who could be thought of as ‘unemployable’ because they lack physical or mental capacity for work. The benefits system may be forcing some of these people into looking for work as a condition for receiving benefits. Some economists argue that people in these circumstances should not be treated as available for work.

Causes of Unemployment

Seasonal unemployment – Some regions (eg coastal towns) and some industries (eg agriculture, tourism and building) need more workers at some times of the year (especially summer) than at other times. Winter generally sees a rise in seasonal unemployment. The problem can’t be eliminated altogether, but flexible working patterns may help some workers to have more than one job.

Frictional unemployment _ –_ In a market economy there will always be some firms closing down or reducing their workforce, whilst others are expanding. This is usually a short-term problem for workers who are currently unemployed. Government action can reduce the average length of frictional unemployment by making it easier for workers to find job vacancies at Job Centres. The government has also made it harder to claim benefits in the early weeks of unemployment to encourage workers to find a job more quickly. Compared to some countries U.K. firms are obliged to pay relatively low redundancy pay, so that workers do not have such a ‘cushion’ to fall back on when they lose their job.

Cyclical unemployment – Market economies are vulnerable to changes in the level of aggregate demand. Economic booms (rapid growth and high demand) usually give way to recessions (negative growth and low demand). In a recession there is an _output gap__as the economy is producing below its potential output. Unemployment usually rises as workers get laid off due to weak demand. Cyclical unemployment can be tackled by interventionist policies to boost aggregate demand . _In the global recession following the financial crisis in 2007/8, governments all over the world boosted demand through fiscal and monetary policy to prevent a more severe recession.

Structural unemployment – Like many mature developed economies, the U.K. has some regions that suffer from unemployment as traditional industries (i.e. shipuilding, coal, textiles, iron and steel) have one into decline. This partly reflects changes in comparative advantage that favour the growth of these industries in newer industrialised countries such as China.

Structural unemployment can also result from technological change, such as automation, or the move towards renewable energy that reduces demand for coal, oil and gas.

Structural unemployment is a very intractable problem. Parts of south Wales, for instance, have not yet recovered from the closure of steel plants and coal mines in the 1980s. The area was highly dependent on these two industries. Tackling the problem requires a mixture of policies to encourage inward investment, retraining of workers and policies to increase geographical mobility of labour.

Real wage unemployment – This occurs when the level of wages in a particular industry is above the market equilibrium rate, resulting in some workers not being able to find jobs. In the past, trade unions were perceived as being able to maintain high wages at the expense of fewer jobs. More recently, some economists argue that minimum wage legislation can destroy jobs for low skilled workers_. _Also, if unemployed people can get more in benefits than by working, they may be reluctant to take low paid jobs. This is one reason why there have been changes to the benefits system in recent years, aimed at incentivising unemployed people to look for and take low paid jobs. This includes working tax credits, which top up wages of low paid workers without the wage rate having to rise.

NB : Apart from cyclical unemployment, which results from a fall in aggregate demand, all other causes of unemployment can be regarded as supply side problems and can be addressed by a mixture of supply side policies, including labour market reforms_._

Changes in Employment and Activity Rates

In recent years governments in the U.K. and other rich countries have tried to increase both the numbers in work and seeking work. This helps raise GDP and growth and also benefits the public finances by increasing income tax revenues and reducing the benefits bill. A great concern is the ageing population , which is reducing the proportion of the population that is of working age. To counter this problem, there are three groups that have been targeted:

• People on disability benefits – In the 1980s the UK government encouraged many long term unemployed people to claim disability benefits. This made the claimant count of unemployment look better, but now the government is trying to reverse this process by making it harder for people to claim these benefits – they have to undergo regular ‘work capability assessments’
• Older workers – Many governments have raised the age at which workers can claim a state pension to encourage them to stay in work longer. Changes in employment law to prevent discrimination against older workers, including ending compulsory retirement ages has also happened in some countries
• __Women __– The employment and participation rates of women is generally lower than for men, mainly due to how child earing and home maintenance tasks have traditionally been shared. In the U.K. government funding of nurseries has made it easier for women with young children to work. At the same time, single parents (mainly women) with children over 5 years old now have to be seeking employment or in work to receive benefits

Impact of Immigration on UK Labour Market

In recent decades the U.K. has experienced significant net inward migration , especially since a number of countries from eastern Europe joined the European Union. There are now some 3 millions nationals from other EU countries living and working in the U.K., compared to just over 1 million U.K. nationals living elsewhere in the E.U.

The impact of this migration is mixed. Most are young and economically active and pay much more in taxes than they receive in benefits. They also add significantly to the overall supply of labour and help to offset the problems of an ageing population. Some sectors of the economy, such as hospitality, agriculture and social care now depend on migrant workers, who are willing to work long hours at low rates of pay.

There is some concern that the abundance of migrant labour depresses wage rates and employment opportunities for U.K. workers as it increases the supply of labour. However, it should be remembered that unemployment is at historically low levels in the U.K. and many migrants work in industries that are avoided by British workers (especially agriculture and social care).

The Skills Problem

The U.K. has a problem with a shortage of skilled workers, particularly in high tech manufacturing and science based industries. Around 40% of school leavers do not have a minimum of 5 GCSE passes including maths English and science. Young adults without these basic qualifications become increasingly difficult to employ and risk become long term unemployed. The key to an internationally competitive and productive economy depends in part on investment in education and training beyond school years.

The Effects of Unemployment

Some unemployment is an inevitable feature of a dynamic market economy, as some firms and industries decline whilst others grow. It is chronic, long term unemployment that is generally regarded as an economic and social problem because of its effects on:

Unemployed workers and their families – It is the main cause of poverty in the U.K. and children growing up in workless households generally do less well at school and so there is a cycle of poverty. Long term unemployed people are much more at risk of both physical and mental health problems. Long term unemployment also becomes self-reinforcing; the longer someone is unemployed the harder it is to get back into work. Confidence and skills deteriorate and employers may look to hire people with recent work history.

Government finances – Spending on benefits goes up when unemployment rises, but tax revenues go down. The government has less to spend on public services and infrastructure.

Communities – Towns and cities with high unemployment, especially youth unemployment have more social problems such as vandalism and drug abuse. More affluent families move away and whole areas of a town can become progressively more run down. Local shopping centres suffer as shops close to be replaced by betting shops, money lenders and charity shops.

The wider economy – High levels of unemployment mean the economy is operating inside its production possibility frontier, so that it is not achieving its potential output. Living standards are therefore lower.

Businesses – Firms may find it increasingly difficult to recruit skilled and motivated workers in areas of high unemployment.

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2.1.3 Employment and unemployment - Theme 2 Edexcel A Level Economics

Subject: Economics

Age range: 16+

Resource type: Unit of work

Last updated

29 February 2024

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This set of resources includes 2x PPT, 2x word files and can be delivered over 2-3 lessons. Learners are introduced to employment and unenmployment. We start by learning about the two key measures of unemployment in the UK with activities, two short exam style questions with answers to consolidate before looking at the different types of unemployment that exist. We also look at the difference between unemployed and underemployed.

In the second powerpoint, there is a focus on exam technique, we look at the effects of migration and then an essay exam style question on the impact on employment in the UK. We look at costs of unemployment to various parties before playing a kahoot on unemployment and finishing off with a box plenary.

Colourful, concise and engaging slides!

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**New for 2021, this bundle for Edexcel's A Level Economics Theme 2 is the ultimate pack for teachers delivering this course. Captivating powerpoints, the highest quality, unrivalled lesson experiences from start to finish.** Filled with real life examples, step-by-step animated diagrams, debates, group tasks, exam style questions with model answers and a variety of activities. Please have a look at individual files to see previews. All you need - open the powerpoint, run through it, and deliver quality lessons whilst saving precious time. Colourful, concise and engaging slides! - all files in zip folder. Thank you Theme 2 - The UK economy - performance and policies

Edexcel A Level Economics Theme 2 - 2.1 Measures of economic performance

This 10 lesson bundle covers: 2.1.1 Economic growth - 3 lessons 2.1.2 Inflation - 2-3 lessons 2.1.3 Employment and unemployment - 2-3 lessons 2.1.4 Balance of payments Filled with real life examples, activities, exam style questions, concise model answers and kahoot quizzes to consolidate learning in an engaging way. All you need - open the powerpoint, run through it, and deliver quality lessons whilst saving precious time. Colourful, concise and engaging slides! - all files in zip folder. Thank you

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