Unemployment Learning outcome AD n Define unemployment n

Unemployment Learning outcome AD n Define unemployment n Describe how unemployment is measured n Explain the types of unemployment n Describe the pattern of unemployment in the UK in recent years n Explain the causes of unemployment and explain the processes with AD/AS diagrams n Explain the effects, both negative and positive, of unemployment n Explain the concept of the natural rate of unemployment n Evaluate counter unemployment policy n Explain the original and Friedman Phillips curve concepts n Explain the concepts of a trade off between unemployment and inflation Reading: Units 29, 86, 87 & 88 A Leader in International Education in China

Unemployment The number of people out of work at a given time

Measuring unemployment n Unemployment can be measured using two methods: The claimant count n All those who register as unemployed n Used in the UK until 1997 Labour force survey (ILO) n A survey of the population to identify those unemployed n Used in the UK since 1998 A Leader in International Education in China

Types of unemployment There are various types of unemployment, the main types are: Ø Classical Ø Cyclical Ø Frictional Ø Seasonal Ø Structural n A Leader in International Education in China

Types of unemployment Classical (real wage unemployment) n Classical unemployment exists when the wage rate is above the level that would create equilibrium in the labour market n In simple terms wages are too high but are unlikely to fall as wages are ‘sticky downwards’ reasons for this include minimum wages, union power and pay agreements n This can be shown using a supply & demand diagram for labour Ø The level of wages (W 1) would provide equilibrium (Q 1) Ø Wages however are too high (W 2) the result is unemployment of (Q 2 to Q 3) A Leader in International Education in China

Real wage rate Classical (real-wage) unemployment S W 2 W 1 D O Q 2 Q 1 Q 3 Quantity of workers

Types of unemployment Cyclical (demand-deficient) n Cyclical unemployment exists when the economy is in recession, unemployment rises because there is a fall in the demand for labour within the economy n This can be shown using a supply & demand diagram for labour Ø Lower demand means that the demand curve shifts in resulting in a decrease in employment Ø If wages do not fall then there will be unemployment of Q 1 to Q 2 A Leader in International Education in China

Cyclical (demand-deficient) unemployment Real wage rate S W 1 W 2 D 1 D 2 O Q 2 Q 1 Quantity of workers

Types of unemployment Structural n Structural unemployment exists when the demand for labour is less than its supply in an industry or area n One example is regional unemployment where there is higher unemployment one area of the country than another i. e. North-East of England n Another example is sectoral unemployment where there is a fast decline in an industry leaving many workers unemployed i. e. UK car industry n Structural unemployment is a serious problem however increasing the mobility of labour helps to reduce the problem A Leader in International Education in China

Types of unemployment Frictional (search) n Most people who lose their jobs move quickly into new ones, this is short-term unemployment and is known as frictional unemployment n It is not seen as a serious problem as there needs to be some movement of labour in an efficient economy n Better job information and help with searching will reduce the time it takes to find a new job and therefore reduce frictional unemployment A Leader in International Education in China

Types of unemployment Seasonal n Some employment is seasonal (people only work at certain times of year) i. e. fruit picking or tourism n Seasonal unemployment tends to rise in winter and fall in summer n There is little that can be done to reduce seasonal unemployment A Leader in International Education in China