Unemployment - 5

Unemployment

Economic Costs of Unemployment

 
1. Loss of earnings to the unemployed

2. More difficult to get work in the future

3. Stress and Health problems of being unemployed

4. Increased govt borrowing: Tax revenue falls, Spending increases

5. Lower GDP for the economy, this is pareto inefficient

Measuring Unemployment

1. Claimant Count Method.

This is the govt official method of calculating unemployment. It counts the number of people receiving benefits (Job Seekers allowance)

Problems with Claimant count

i) The Count excludes those over 60, under 18, those on govt training schemes, and married women looking to return to work

ii)  Some people may claim benefits whilst still working in the “black Market”

2. The Labour Force Survey
This is a survey asking 60,000 people whether they are unemployed and whether they are looking for a job.
· It includes some people not eligible for benefits

Types of Unemployment

1. Frictional Unemployment:

· This is unemployment caused by people moving in between jobs, e.g. graduates or people changing jobs. There will always be some frictional unemployment.

· Also high benefits may encourage people to stay on benefits rather than get work this is sometimes known as “voluntary unemployment”

2.  Structural Unemployment

· This occurs due to a mismatch of skills in the labour market it can be caused by

1. Occupational immobility’s. This refers to the difficulties in learning new skills applicable to a new industry, and technological change.

2. Geographical Immobility’s. This refers to the difficulty in moving regions to get  a job

3. Classical or Real Wage Unemployment:

· This occurs when wages in a competitive labour market are pushed above the equilibrium. This could be caused by minimum wages, or trades unions.

4.  Demand Deficient or “Cyclical Unemployment”

· This occurs when the economy is operating below full capacity. In a recession when AD falls there is a fall in output therefore firms will employ less workers. This causes a rise in cyclical unemployment. The effect of this may also be increased by the negative multiplier effect

· Note: Classical economists would not agree with this because they believe LRAS is inelastic therefore a fall in AD would not reduce Real GDP in the long