Unemployment

1. What is Unemployment?

Definition: Unemployment = people who are willing to work but cannot find work due to unavailability of jobs.

Stock and flow of unemployment (19.4)

• Stock = measured at a particular point in time (a snapshot) — e.g. level / rate of unemployment.
• Flow = measured over a period of time — people moving in and out.
• Stock can stay the same over months but not the same people — some became unemployed, others found jobs or left the labour force.
• Discouraged workers = give up hope of finding a job ⇒ leave the labour force.

2. Measures of Unemployment (19.5)

Governments use two main methods:

① Claimant count measure

What: counts as unemployed those who register as unemployed to claim benefits.

✓ Advantages	✗ Disadvantages
relatively cheap and quick — uses info govt already collects when paying benefits	may overstate (some receiving benefits aren't seeking work / are working and claiming illegally)
	may understate — omits people actively seeking work but not in figures: too young/old to claim, choose not to claim, full-time students looking for work, non-employment income too high

② Labour force survey (LFS) measure

What: a survey asking people if they are employed, unemployed or economically inactive. More widely used than claimant count; usually uses the ILO definition.

✓ Advantages	✗ Disadvantages
picks up some groups not in claimant count internationally agreed definitions ⇒ easier international comparisons more info (e.g. job-seekers' qualifications)	more expensive and time-consuming sample survey ⇒ sampling error + practical problems of data collection

3. Types and Causes of Unemployment (19.6)

Three main types — frictional, structural, cyclical — each with different causes.

A. Frictional unemployment

Definition: temporary unemployment when workers are between jobs — they leave voluntarily, are sacked/dismissed or made redundant.

Form	Meaning	Example / note
Voluntary	not willing to accept jobs at current wage rate & conditions	if benefits ≥ wages, may stay unemployed; benefits usually fall after a time
Search	doesn't accept first job offered; spends time looking for a better-paid job (board: "he is looking for a better paid job")	better / more information ⇒ less search unemployment
Casual	out of work between periods of employment	actors, supply teachers, construction workers
Seasonal	demand for workers fluctuates with time of year / season changes (summer → winter)	tourism, hospitality, building, farming; board eg: dry fruits / soup / mango

B. Structural unemployment

Definition: unemployment from a change in the structure of the economy / industry — e.g. labour-intensive → capital-intensive production ⇒ automation. Skills of the unemployed don't match jobs on offer.

Form	Meaning	Example
Regional	demand for a certain industry declines in a particular area of the country	gold mining in South Africa (Witwatersrand) when gold demand falls
Technological	out of work due to labour-saving techniques	drones & robots delivering shopping/food replace drivers
International	demand switches from domestic to more competitive foreign industries	UK steel → Chinese steel; ACCA workers in UK → Middle East

C. Cyclical (demand-deficient) unemployment

Definition: arises from a lack of aggregate demand; depends on the economic cycle; affects the whole economy (job losses across many industries).

AD ↑ ⇒ unemployment ↓  |  AD ↓ ⇒ unemployment ↑   (DL = demand for labour)

Fig 19.7 reading: labour market starts in equilibrium at wage W (ADL meets ASL at Q). Fall in AD ⇒ firms cut output ⇒ demand for labour shifts to ADL₁. If workers resist wage cuts, only X workers are demanded but Q supplied ⇒ unemployment XQ.

4. Costs and Benefits of Unemployment

Fuller picture (textbook)

Who	Costs	Benefits
Individuals	fall in income; harder to get a job the longer out of work (miss training, out of touch with technology, lose confidence); decline in physical & mental well-being	a few may use frictional/structural unemployment to find a job they enjoy more / better paid
Firms	lower demand for their goods and services	wanting to expand ⇒ greater choice of workers; economy adjusts faster (workers move from declining → expanding industries); workers don't ask for wage rises for fear of job loss
Economy / govt	opportunity cost: output below potential, lower living standards; lower tax revenue (and higher benefit spending)	—

5. How Significant is Unemployment? (19.8)

• Effects depend on rate, duration and type.
• High rate ⇒ economy producing well inside its PPC, forgoing a lot of output.
• Longer unemployed ⇒ low income, poor mental health (stress); chances of getting a job fall: skills outdated, lose confidence, become discouraged workers, employers reluctant to hire the long-term unemployed.

• Frictional = least serious; some is unavoidable in a changing economy. Cyclical can be serious — high rate, long duration.
• Govts: harmful effects outweigh benefits ⇒ keep unemployment low, but not zero (labour demand/supply always changing; time gap between jobs). Aim: avoid structural & cyclical, keep frictional as low as possible.
• Low unemployment ≠ always strong economy: low-paid / insecure jobs, underemployment (part-time when want full-time, or jobs not matching talents).
• Reason for a fall matters: good-quality jobs found ⇒ beneficial; unemployed giving up searching ⇒ not beneficial.
• Not equally spread: varies by gender, age group, ethnic background, region, skills.

6. Policies to Deal with Unemployment

Reason for unemployment (cyclical): AD ↓  ⇒  Target: AD ↑ ⇒ Demand-side policy (to control unemployment: AD ↑, U ↓).

① Fiscal policy

Budget = Tax revenue − Government expenditure.

Target: AD ↑ ⇒ Expansionary fiscal policy (circled on board). Tools: Taxation ↓ and Government expenditure ↑.

Income tax ↓ ⇒ disposable income ↑ ⇒ consumption ↑ ⇒ AD ↑ ⇒ producer signal ⇒ production ↑ ⇒ demand for labour ↑ ⇒ unemployment ↓

Corporation tax ↓ ⇒ retained profits ↑ ⇒ reinvestment ↑ ⇒ jobs → income ↑ ⇒ consumption ↑ ⇒ AD ↑ ⇒ production ↑ ⇒ DL ↑ ⇒ unemployment ↓

Govt expenditure ↑ (roads / development, public goods, subsidies) ⇒ jobs → income ↑ ⇒ C ↑ ⇒ AD ↑ ⇒ production ↑ ⇒ DL ↑ ⇒ U ↓

② Monetary policy

Target: AD ↑ ⇒ unemployment ↓ ⇒ Expansionary monetary policy. Tools: money supply & interest rate; exchange rate ↓.

Money supply ↑ ⇒ interest rate ↓:

Savers: save ↓ (lower rate of return) ⇒ spend ↑ ⇒ consumption ↑ ⇒ AD ↑

Borrowers: borrow ↑ (cost of borrowing ↓) ⇒ reinvestment ↑ ⇒ jobs, income ↑ ⇒ C, AD ↑ ⇒ U ↓

Exchange rate ↓: X price ↓ ⇒ X qty ↑ ⇒ X total revenue ↑ (relatively: M price ↑, M qty ↓, M total expenditure ↓) ⇒ AD ↑ ⇒ production ↑ ⇒ DL ↑ ⇒ U ↓

7. Exam-style MCQs ( AS Economics)