Low unemployment

Employment and unemployment

The labour force is the people in a country that could be workers. There are some people that are not a part of the active labour force such as children, students, pensioners and the ill. Unemployment is when people that are part of the active labour force are both willing and able to work at the current rates but cannot find a job. Employment is when firms pay for the resource labour to produce goods and services.

There are two key ways to measure the size of unemployment: the claimant count and through a labour force survey.

The claimant count measure the number of people receiving unemployment benefits. There may be some reasons why this may miss some members of the active labour force that are not currently employed. People who are not working but can afford not to seek benefits ad choose not to would not be counted. Nor would those temporarily without jobs.

A labour force survey involves contacting households directly and asking questions about employment. This uses international standards making it easier to compare unemployment figures between countries.

Analyse recent and historical unemployment figures

Trading economics is once again the best place for this data. You will find unemployment under the labour tab after you select a country. Remember the keys from before: where does it start, where does it end is there a trend and is it steady or are there some fluctuations. To analyse the 10 year unemployment graph for the UK shown below I would say:

At the start of the period in 2012 the UK had a high unemployment rate of 8%. This came steadily down until it reached just below 4% in 2019. There was a short lived increase in unemployment due to the pandemic but otherwise it has remained steady just below 4% since.

UK unemployment rate *courtesy: Trading Economics - ONS*

In an analyse question as well as talking through what you see you would need to talk about its flow on effects. For instance, a decrease in the unemployment rate means incomes are rising as having a job pays more than benefits. Now it depends who you are asked to analyse the effect of it for. For individuals that is good because they can get more of the things they want and have a higher standard of living. For firms this is good because there is an increase in demand because people have more money and this can lead to higher profits. For the government it is good because they pay less in benefits and get more in taxes meaning they have more money to spend on areas they feel desrve it.

Types of unemployment

Type of unemployment	Description
Cyclical	Economies tend to move in cycles of booms and busts. Cyclical unemployment is when unemployment is the result of a drop in demand. This can lead to a vicious circle because lower demand means less workers are needed but as some workers lose their jobs incomes fall further.
Frictional	This is a form of unemployment that occurs when someone is moving between jobs. Rather than being a problem frictional unemployment can show that the labour force is adapting to be a part of new growing industries.
Seasonal	This is where workers are only employed in certain seasons such as beach resorts in summer and ski resorts in winter. Fruit picking times are dependent on when crops develop and so tend to be seasonal.
Structural	This is where an industry goes into decline or collapses and the workers that are made unemployed lack the skills and qualifications needed for new opportunities in their area. As the industry declines so to property values in the area and it may not be a viable option for people in areas of structural unemployment to move.

The reality is that in many cases several of these factors may have had a role in unemployment in a particular scenario. They do not have to exist in isolation.

Evaluate the consequences of unemployment

Benefits of unemployment	Costs of unemployment
Some unemployment, particularly frictional unemployment, helps the economy transition away from declining industries and into newer developing industries.	Unemployment means lower standards of living as people earn less on benefits. People who are unemployed a long time can become discouraged. The longer they are unemployed the harder they find it to get a job. It can also lead to social problems. Unemployment benefits are paid for from taxes raised by the government so there is also an opportunity cost with money spent on benefits not able to be spent on other things that may benefit more people.
When unemployment is high there is competition for jobs which keeps wage rates low which is good for firms because it lowers their costs.	Unemployment represents the resource labour being wasted. As we saw in the explanation of cyclical unemployment above, it can become a vicious circle with unemployment causing lower incomes and therefore lower demand which causes more unemployment. The higher the unemployment rate, the more the government has to pay in benefits and the less it receives in taxes, meaning they are more likely to have a deficit budget. This requires government borrowing and will mean having to repay it with interest in the future.
If firms use the lower costs that come from cheaper labour then they may be more competitive internationally leading to increased exports.	Unemployment can be unevenly spread leading t areas of deprivation. These often arise as a result of structural unemployment and can be very hard to resolve. As areas become more depressed people move away and those with the most money tend to go first. This can lead to a downward spiral of impoverishment in a region.

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Questions

Explain what is meant by unemployment. (2 marks)

When people who are able and willing to work for the current rates(1) cannot find a job.(1)

Explain what the claimant count is. (2 marks)

A measure of unemployment(1) that is based on the number of people claiming unemployment benefits.(1)

Explain what frictional unemployment is. (2 marks)

When workers are temporarily unemployed(1) as they transfer from one job to another.(1)

Explain what structural unemployment is. (2 marks)

When an industry goes into decline(1) and the workers from that industry don't have transferable skills to easily get new jobs.(1)

Explain what seasonal unemployment is. (2 marks)

This is where a job only really exists in one season such as ski resorts in winter or beach resorts in summer(1) Therefore many people in these areas are unemployed in the off season.(1)

Analyse the effects of recent unemployment trends on the UK. (6 marks)

Sample answer:

The unemployment rate measures the number of members of the active labour force that are out of work.{AO1} The UK has had a steadily declining unemployment rate throughout the period with a small backstep caused by the pandemic.{AO2} This means higher wages for UK citizens{AO3a} and a higher standard of living.{AO3a}

It also means less money spent by the government on paying benefits{AO2} resulting in more money for them to spend in other areas such as health improving the welfare of the population.{AO3a}

Case study/Scenario

Evaluate the consequences of unemployment for the government. (6 marks)

Sample answer:

When unemployment increases more people require benefits{AO2} This means the government has to pay more in benefits and recieve less in income tax{AO3a} The level of unemployment will have a big impact on how important this factor is.{AO3b}

The lower average incomes caused by unemployment can lead to lower spending which can lead to further unemployment and a vicious cycle of decline.{AO3a}. The level of unemployment and the actions the government takes to stop this cycle will determine how important it is.{AO3b}

Unemployment is of major concern if it gets high as it can cause further unemployment but of less concern if managed at low levels.{AO3b}