Entries Tagged 'unemployment' ↓
February 26th, 2010 — unemployment
Underemployment refers to a situation where there is a disequilibrium in the labour market causing labour to be under utilised. This can include:
- Workers working less hours than they would like
- Workers accepting jobs that don’t utilise their skills
According to the Office for National Statistics, there are 2.8 million workers in Britain who are working less hours than they would like (link). This could include people forced to work part time rather than full time. This figure of underemployment has increased during the recession because firms have sought to avoid paying redundancy by reducing working hours and therefore cost of labour.
Underemployment does not have as many costs as official unemployment. But, it does mean the underemployed have lower incomes and so will spend less.
Another type of underemployment occurs when workers end up with low skilled jobs that don’t utilise their qualifications. For example, a trained accountant who works in McDonalds is under using his skills.
If this kind of underemployment is widespread, it means the economy will be operating below its potential capacity.
Over Employment – Under Employment
Another market failure in the labour market is when firms employ workers even when there is no work for them to do. For example, firms may hang onto workers in winter for busy summer months. Some may call this underemployment, others may call it overemployment
Disguised Unemployment
Underemployment is similar to the concept of disguised unemployment.
Disguised unemployment looks at people who are not officially counted as unemployed but are either not working or working very inefficiently. e.g. disguised unemployment could count students not working in holidays who are not counted on official statistics.
February 19th, 2010 — unemployment
Readers Question: explain benefits of increasing rate of unemployment BENEFIT FOR :UNEMPLOYED , society and any cost that may result from such policy.
Current Weekly Rates of Job Seekers Allowance in UK
- Under 24 £50.95
- Age 25 or over: £64.30
Source: Direct Gov
Note: Unemployed may be eligible for other benefits
In any economy there will be some frictional unemployment. It takes time for people to find a job suited to their skills. If you left university with a degree in mechanical engineering, it wouldn’t make sense to get the first job that came along. A good rate of unemployment benefit would enable you to take time in finding a job suited to your skills. A low rate may force you to get a job at McDonalds which would be an inefficient use of spending 4 years at university.
Another potential benefit of raising the job seekers allowance is that it would be an example of expansionary fiscal policy. An increase in unemployment benefit would lead to an increase in spending. (It would be more effective than say tax cuts for high earners. The mpc of the unemployed will be close to 100%. High earners may save tax cuts.)
One of the big mistakes of the Great Depression in the UK was that the government cut unemployment benefits (I think in 1931). The treasury were worried about rising levels of government borrowing so unemployment benefits were cut. Of course this reduced aggregate demand further and caused a deeper recession. (As well as increasing inequality)
Another benefit of raising job seekers allowance is that it would reduce income inequality. The poorest sections of society are generally on benefits such as job seekers allowance. Therefore, raising benefits would be effective in reducing poverty and inequality.
Disadvantage of Raising Unemployment Benefits.
The main problem of raising unemployment benefits is that higher benefits can create disincentives to work. There is an increased incentive to remain on benefits rather than work.However, note that the weekly rate of £65 is hardly going to be much of a disincentive from getting a job which pays NMW of £5.65 an hour.
Also, it requires higher taxes or more borrowing.
August 17th, 2009 — unemployment
As output falls, you would expect a rise in unemployment. If output is lower, firms will need less workers.
Okun’s law is a look at the relationship between falling output and rising unemployment. As a rough rule of thumb, in Okun’s original statement of his law, he found a 3% increase in output corresponded to a 1% decline in the rate of unemployment; a .5% increase in labor force participation; a .5% increase in hours worked per employee; and a 1 % increase in output per hours worked.
Therefore, as output falls we would expect a rise in unemployment as firms lay off workers. However, the relationship between output and unemployment can vary significantly.
For example, falling output in the Eurozone has led to a much smaller rise in unemployment than in the US.
Unemployment
Reasons why Unemployment in Eurozone has risen more slowly than US
- Greater protection for Eurozone workers. More difficult to fire workers
- Government subsidies for workers working shorter hours. This encourages people to work part time, rather than full time.
- Firms keener to retain skilled workers rather than the costs of laying off workers then rehiring them.
The UK has seen a rise in numbers working part time or shorter hours. Therefore, the decline in full time employment has been greater than the rise in official unemployment.
What this means is that the forecast rise in unemployment may be less than predicted, but, when the economy recovers, it will take much longer for unemployment to fall.
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August 13th, 2009 — unemployment
Unemployment: Source: ONS
ILO-defined unemployment in April to June was 2.44 million (7.8%) – up by 220,000 unemployed on the quarter and 750,000 from this time last year.
The claimant count for key out-of-work benefits was 1,582,700 in July – up by 24,900 on last month, and up 709,000 on last year.
Measuring Unemployment
The recession has led to a sharp rise in Unemployment. With output expected to fall by a record 5.5% this year, it is hardly surprising unemployment has risen. In fact, we might have expected a higher rate of unemployment.
The growth in unemployment has been limited by factors such as a growth in part time worker and decline in participation rates. The outlook for workers, especially young people entering the labour market is grim.
International Comparisons of Unemployment with EU and US.
Unemployment ILO comparisons
This shows that unemployment in the US has increased faster than in the Eurozone. This partly reflects the fact US labour markets are more flexible. Therefore, it is easier to fire workers in the US. But, in the Eurozone area, firms appear more reluctant to take workers on during periods of growth.
Related
April 8th, 2009 — unemployment
Readers Question: What is the difference between natural rate of unemployment and cyclical employment?
The natural rate of unemployment measures the unemployment when the labour market is in equilibrium. It is composed of supply side unemployment such as frictional and structural unemployment.
For example, even when the economy is at full capacity / full employment, people may be unemployed because they lack the necessary skills to get a job. Also, even at full employment, there will always be some people in between jobs (frictional unemployment)
Cyclical Unemployment is unemployment due to negative economic growth, or output being below full capacity. In a recession, cyclical unemployment will rise sharply. This is because if there are less orders for goods, firms produce less and therefore there is less demand for workers.
(A recent study suggested UK unemployment would peak at 3.2 million in 2010 due to the scale of the current recession.)
Often cyclical unemployment can cause a rise in the natural rate of unemployment. If young people are out of work for a long time in a recession, it can be difficult to get back into employment because of lack of job experience and decline in motivation. This is known as the hysteresis theory. It occured after the 1981 recession – unemployment took a while to reduce.
March 17th, 2009 — unemployment
Readers Question: Why are there large differences in the unemployment rate across different regions of the UK?
In the 1980s regional differences in unemployment were greater. To some extent regional differences in unemployment have narrowed in recent years. However, differences still exist. Some reasons include:
- Decline of Industry. Some areas relied on certain industries to provide a large % of jobs. If these industries close down then areas suffer from a high rate of unemployment. A good example, was when coal mines closed down in certain areas. It led to high unemployment in certain areas such as South Yorkshire and South Wales.
- Negative Multiplier Effect. Depressed areas often struggle to attract investment. e.g. if an industry closes down then related to businesses suffer e.g. cafes, pubs which used to service the old industries.
- Labour Immobility. One question is if unemployment in one part of the country is high, why don’t people move to areas where there are jobs? One issue is the difficulty of moving. For example it is:
- Difficult to gain housing in areas such as London (especially difficult if you have to sell and buy a house)
- Difficult with children in school, wives in part time work e.t.c
- Emotionally difficult to leave friends e.t.c.
4. Lack of skills / qualifications. Some inner city areas may have low numbers of qualified people who therefore struggle to gain employment.
5. Higher unemployment amongst ethnic minorities. Sometimes unemployment rates are higher in certain boroughs or areas of cities. These areas may have a high ratio of first or second generation immigrants. They may be more likely to be unemployed because of poor skills / language barriers/ discrimination e.t.c
October 6th, 2008 — unemployment
Readers Question: how to solve unemployment by tools of monetary policy?
Monetary policy effectively means changing interest rates to influence aggregate demand, economic growth and therefore demand for workers.
The UK is heading into recession and unemployment is rising. It is argued a cut in interest rates would help reduce unemployment.
- Lower interest rates reduce the cost of borrowing encouraging spending and investment.
- Lower interest rates reduce the cost of mortgage payments giving homeowners more disposable income and therefore spending increases.
- Therefore, lower interest rates should help increase consumer spending and investment. Therefore, aggregate demand will rise. If there is spare capacity in the economy, there will be an increase in economic growth and therefore firms will demand more workers. This will help reduce demand deficient unemployment.
However:
- Lower interest rates may not increase consumer spending if confidence is very low. (e.g. in a recession, people may not want to borrow to invest, even if interest rates are very low)
- Cutting interest rates will only solve demand deficient unemployment. It will not reduce supply side unemployment – the natural rate
September 26th, 2008 — unemployment
Readers Question: What are the types of unemployment?
Firstly, we can make a distinction between:
- Supply side unemployment (the natural rate of unemployment). These are usually microeconomic imbalances in labour markets.
- Demand side unemployment (Unemployment caused by lack of aggregate demand in the economy). In the coming recession, we can expect demand deficient unemployment (sometimes called cyclical unemployment) to increase significantly.
Amongst Supply side unemployment Different types include:
- Frictional – when people are in between jobs.
- Structural – Unemployment due to occupational or geographical immobilities. Often occurs after structural change in the economy. E.g. closure of mines, left many miners struggling to find suitable work.
- Real Wage Unemployment. e.g. powerful trades unions bargaining for wages above the equilibrium. (this may be exacerbated by fall in aggregate demand)
- Voluntary unemployment. Some debate exists over this form of unemployment. But, arguably high benefits may encourage some to stay on benefits rather than take low paid jobs.
- Seasonal Unemployment
See also causes of Natural Rate of Unemployment to change
August 15th, 2008 — unemployment
Readers Question: What are the effects of increased investment on aggregate demand in the short term and the long term.
Investment is a component of AD. AD+ C+I+G+A-M. I think, Investment spending takes about 15% of AD; it is not as significant as Consumer spending which is 66%.
If Investment increases, then ceteris paribus, AD will increase. However, it depends on circumstances. e.g. in present situation with falling house prices and lower consumer spendin, increased investment may be insufficient.
In the long term, higher investment may increase productive capacity and increase Aggregate supply. Therefore, you could argue, invesment enables a more sustainable increase in AD.
People often ask whether increased AD leads to an increase in Real GDP. Often the suggested answer is yes in the short term, but not in the long term.
See also:
July 6th, 2008 — uk economy, unemployment
Readers Question I’m currently looking at stagflation in the mid 1970s in the UK, and the policies the then-Government undertook to solve the economic crisis.
Was the Government right to widen the budget deficit 1974-5 in order to stimulate demand, or should it have run less expansionary policies to temper the effect of rising prices?
I’m afraid I don’t have access to many statistics from the 1970s, so it is hard to make much analysis. But basically, the government faced a twin problem of rising prices (mainly cost push) and falling demand. (Stagflation) By pursuing expansionary fiscal policy, they were attempting to maintain full employment ( a noble objective). However, it led to a rise in inflation and inflation expectations. Combined with powerful trades unions in the 1970s, this led to a sharp rise in inflation (25% by 1979). Arguably these rates of inflation were costly for the economy and led to an almost inevitable recession in 1980. see: recession 1980-81
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