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You are expected to be able to explain/analyze (AO2) and draw/apply (AO4) unemployment and measurements of unemployment; calculate (AO4) unemployment rate from data, draw (AO4) the minimum wage effect on unemployment, draw (AO4) a fall in demand for labor in an economy, and draw (AO4) deflationary gaps to show cyclical unemployment.
Employment refers to the use of all factors of production in the process of producing goods and services, not only the labour force. However, unemployment is usually a bigger concern for labour, as people have feelings and land/capital/enterprise does not.
Measuring Unemployment
Measuring Unemployment
Unemployment Rate = (Number of Unemployed People / Labor Force) x 100
Unemployment refers to the situation in which people willing and able to work, and looking for work, are unable to find any.
The labour force is the amount people employed, self-employed, and unemployed in an economy.
Difficulties of Measuring Unemployment
Difficulties of Measuring Unemployment
Hidden unemployment: The official definition is that people must be actively looking for work to count as unemployed. However, many people give up after many months of searching, and while they are unemployed, they don't count in the measurement. These are called discouraged workers.
Underemployment: Some people are working, but would like to work more, but can't find anything. They also don't count in the unemployment figure.
Voluntary unemployment: Some people don't want to work. They also don't count to the figure.
Causes of Unemployment
Causes of Unemployment
Cyclical Unemployment: Unemployment as a result of a downturn in the business cycle (a lack of demand for work). It can be represented using a deflationary gap on an AD/AS curve. ->
Structural Unemployment: Unemployment as a result of a skill mismatch. If you're an expert welder, but all welding jobs are automated and the only jobs available are programming welding robots, you are in structural unemployment. It takes time to learn new skills and it might involve you having to move.
Seasonal Unemployment: Unemployment caused by periodical changes in demand. If you're a ski lesson instructor, you will be unemployed in the summer.
Frictional Unemployment: Unemployment as people are transitioning to a new job. There will be a few weeks/months in which people are updating their resumes, applying for jobs, and attending interviews.
Natural Rate of Unemployment
Natural Rate of Unemployment
This is the equilibrium rate of unemployment. There will always be structural, seasonal, and frictional unemployment in an economy.
Calculated by adding Structural + Seasonal + Frictional all together.
A minimum wage disturbs this equilibrium, as more people will be willing to work at the minimum wage than what firms will employ. It acts as a price floor, increasing quantity supplied and decreasing quantity demanded.
Costs of Unemployment
Costs of Unemployment
Personal Costs: Stress, poverty, bad for family relationships
Social Costs: Crime, indebtedness, social deprivation
Economic Costs: Lower GDP, lower tax revenues, more unemployment benefits, more inequality
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