The Labour MarketUnemployment is one of the major macro-economic performance indicators.

Keeping unemployment as low as possible is a

major policy objective of the government.

15

WHY?

Fed – “Dual Mandate”

U.K Forward

Guidance 1

Economic Costs

•Lost output

•Inefficiencies

Fiscal

Costs

•Less tax revenue

•Higher welfare payments

External

Costs

•Anti-social behaviour

•Demands on NHS

Why high unemployment mattersInside PPF;

Allocatively and productively

inefficient

Negative output gap

Automatic stabilisers – less tax revenue means less leakages

Automatic stabilisers – G rises, helping

AD

Youth unemployment rising, more crime, more stress

Effect of unemployment depends on the type e.g.

Structural more significant than frictional

Hysteresis and permanent

effects could cause PPF to

shift in

Income tax + N.I + VAT : >50% of UK tax revenue

Workless households more likely to be in poverty… intergenerational

issues…

Don’t confuse unemployment with inactivity

Unemployed are looking for a job;

whilst Inactive are not in the labour market Retired

The inactivity rate in the UK for those aged from 16 to 64 was 22 per cent

The unemployment rate is 7.2 per cent of the economically active population

Students

Prisoners

Disabled

Stay-at-home parents

Monthly figures, seasonally adjusted

United Kingdom Economically Inactive Population

Discouraged workers

Long-term sick

Looking after family/home

Other reason

Retired

Student

Temp sick

Wants a job

Source: Reuters EcoWin

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

mill

ion

s

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Pe

rso

n (

mill

ion

s)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

As many people unemployed in UK as there are long-term

sick

What are the causes of unemployment?

Look at the case studies on page 15.You have 2 minutes to work out which type of unemployment applies to the three people

You have 2 minutes

AndrewCharlie Sarah15

What are the causes of unemployment?

Hidden Frictional

AndrewCharlie Sarah15

Cyclical

Types of unemployment (1)• Unemployment related to the

process of changing jobs, which may involve a period out of work.Frictional

• The category of unemployed whose number varies according to the business or economic cycle.Cyclical

Improve by: increasing flow of information – job centres

NB: Not just in a recession (e.g. in a boom, bankruptcy lawyers have no business!)

Demand-deficient / Keynesian

Types of unemployment (2)• When there is a mis-match

between the skills of those unemployed and the skills that new jobs require. Structural

• Unemployment which is known to exist but is not included in the official government figuresHidden

Improve by: supply-side policies such as retraining

Especially amongst illegal immigrants – evaluation on

official figures

Types of unemployment (3)• This type of unemployment occurs

when trade unions bargain for higher wages, which leads to fall in the demand for labour.

Classical / real-wage

• A type of unemployment that occurs due to the seasonal nature of the job is known as seasonal unemployment.Seasonal

The more they push wages up, depending on the

elasticity of labour supply and demand, the more

unemployment

E.g. tourism

Key Facts about unemployment

Annual percentage change in GDP at constant prices, percentage unemployed

UK Economic Growth and Unemployment

Source: UK Statistics Commission

05 06 07 08 09 10 11 12 13

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Per

cen

t

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Real GDP (Annual % Change)

Unemployment (% of the labour force, LFS)

16Task : Using the chart, identify two significant points of comparison between UK unemployment and economic growth over the period shown.

Demand-deficient

(Keynesian) unemployment

Unemployment tends to LAG

real GDP… Why?

Key Facts about unemployment

Remember, if the question asks for a comparison then don’t just describe. What is the same? What is different? Is the level of change different for the two statistics? What’s the overall change over the course of the time period?

You have 2 minutes

16Annual percentage change in GDP at cons tant prices , percentage unemployed

UK Economic Growth and Unemployment

Sourc e: UK Statis tic s Commis s ion

05 06 07 08 09 10 11 12 13

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Per

cent

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Real GDP (Annual % Change)

Unemployment (% of the labour force, LFS)

Key Facts about unemploymentTask : Using the chart above, identify two significant points of comparison between UK unemployment and economic growth over the period shown.

Comparison 1

Unemployment has grown throughout the period, economic growth has been variable (add figures!)

Comparison 2

Largest increase in unemployment occurred during 2008-2009, during the same period economic growth was negative (add figures).

16

ADD UNITS! %, £, levels, etc

What do you think are the current rates and levels (March 2014) for the categories below?

Statistic Real statistic

Unemployment rate (as a % of the economically active population, Labour Force Survey)

Unemployment total (no. of people registered unemployed, Labour Force Survey)

Economically inactive (i.e. people without a job who have not actively sought work in the last four weeks)

Unfilled Vacancies (where employers are actively seeking additional workers)

Employment Total (the number of people over 16 in employment)

Youth Unemployment (the number of people aged 16 – 24 who are registered unemployed)

7.2%

2.34 m

8.94 m

144 k

30 m

950k

16

Key Facts about unemployment

In an evaluative question relating to unemployment you need to be able to DISAGGREGATE: demonstrate the importance of youth unemployment, long-term unemployment and the availability of jobs.

You will not be asked to state a macro-economic performance statistic. However, the ability to state a current trend may be a useful way of demonstrating knowledge to an examiner.

16

25% of ALL Eurozone youth unemployed are in Spain!

Youth unemployment: Fears of a ‘lost generation’

Around a million young people are now unemployed across the UK.

Demographic of unemployment

Millions, seasonally adjusted, using Labour Force Survey data

UK Unemployment, By Duration

Source: Reuters EcoWin

03 04 05 06 07 08 09 10 11 12 13

mill

ion

s

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Pe

rso

ns

(mill

ion

s)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Unemployed for up to six months

Unemployed for over 12 months

Unemployed for over 24 months

HysteresisPermanent effects

Atrophy of skills

Thousands, people out of work for at least a year

Long Term Unemployment for people Aged 18-24

Source: Reuters EcoWin

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

25000

50000

75000

100000

125000

150000

175000

200000

225000

250000

275000

25000

50000

75000

100000

125000

150000

175000

200000

225000

250000

275000

c.25% of UK’s youth unemployed have been unemployed are LONG

TERM unemployment

Unemployed people aged 16-59 (women) / 64 (men), seasonally adjusted

Unemployment in the UK Economy

Source: Labour Force Statistics

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

0

1

2

3

4

5

6

7

8

9

10

11

12

13

pe

r ce

nt

of

the

lab

ou

r fo

rce

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Claimant Count

Labour Force Survey

Unemployment during the Recession

Analysis: Suggest three reasons why unemployment has not been

as high during the economic downturn since 2008.

You have 2 minutes

17

Unemployment during the RecessionPeriod Peak Unemployment Rate1979 - 84 12%1990 - 94 10.8%2008 - present 8.4%

Reason 1 Higher proportion of part-time jobs / Zero hours contracts…

Reason 2Employers less willing to make workers redundant (holding out for improvement in demand); Labour hoarding

Reason 3 Less available benefits/more robust benefit claim system

Unemployment during the RecessionPeriod Peak Unemployment Rate1979 - 84 12%1990 - 94 10.8%2008 - present 8.4%

Analysis: Suggest two possible consequences of this different pattern of unemployment.

Consequence 1

Employers keeping less effective workers

Consequence 2

Employers have a higher proportion of part-time workers

Productivity impact?

Unemployment during the Recession Keeping less effective workersPoint: Faced with falling output, firms are more willing to keep workers

employed which suggests that they have been keeping some less productive workers.

Evidence for this:

Productivity levels in the UK have remained stagnant and have not improved (unlike during other recessions).

Explanation of why this is a problem:

Lower productivity leads to higher possible costs and potentially higher prices compared to competition (from abroad).

It depends upon…… (an evaluative point):

Other factors leading to lower productivity such as quality (and age) of machinery

leads to a lower levels of output

How much of their shortfall in income is compensated by any potential state benefits

Part-time jobs attract a pro-rata level of wages, meaning that people earn less than if they worked full-time.

Unemployment during the Recession Having a higher proportion of part-time workersPoint:

Evidence for this:

Explanation of why this is a problem:

It depends upon…… (an evaluative point):

leads to lower levels of consumption

Employers have seen an increase in the proportion of their workers who are part-time.

Statistics show an increase in the number of people who work part-time even though they wish to work full-time.

Source: ONS

UK labour productivity (2010=100)

Source: Labour Force Survey - ONS

Part-time employees who could not find full-time work

Underemployment…

Exam question: Evaluate the policies that might be most effective in reducing youth unemployment in the UK.

Definition: Young people aged between 18 and 24 who are actively seeking work but are unable to find a job.

19

TWEEP Evaluation

Analysis: Explaining high youth unemployment – 16-24yrs

Human Capital

Problems

Reluctant Employers

Reduced retirement

rates

Weakness of training schemes

17

Both demand-side AND supply-side causes

Tax?

Supply side issue?

RULC?

Competition?

Exam question: Evaluate the policies that might be most effective in reducing youth unemployment in the UK.

Policy ExampleTargeted macro stimulus policies to boost growth

Expansion of apprenticeship schemes

Improving geographical mobility of labour

Measures to stimulate business start-ups

Active regional development policies

Reduce corporation tax

To include new skills such as brick-laying

Expansion of EU

New Employment Allowance to reduce NI contributions for new small businesses

Regional employment funds

19

No guarantee of success – quality not quantity of policy matters

Time lags

Short term vs long term

Effects of unemployment depends on government’s response

Policy depends on cause of

unemployment

Policy Impact

Targeted macro stimulus policies to boost growth T

Expansion of apprenticeship schemes W

Improving geographical mobility of labour E

Measures to stimulate business start-ups

E

Active regional development policies P

Using TWEEP

Reduce corporation tax

To include new skills such as brick-laying

Expansion of EU

New Employment Allowance

Regional employment funds

20

No guarantee of success – quality not quantity of policy matters Time lags

Immediate or delayed

impact?

Productivity impact?

Efficiency – new skilled

workers Improve female

employment

Regional unemployment

priority

11/04/2023

Twitter: @tutor2u_econ