The True Level of Unemployment in UK

Readers Question: To what extent do the official UK figures for unemployment accurately reflect economic reality?The unemployment rate measures those who are officially seeking work but unable to find employment. However, the official unemployment rate does not include those who are not working and are classed as economically inactive. For example, economically inactive can includePeople may feel there are no jobs available People on sickness and disability benefit Family careers. Early retirement StudentsThe OECD produced a report in 2019 that if the economically inactive are included – the ‘true…

Definition of Unemployment

Definition of Unemployment

Unemployment is defined as a situation where someone of working age is not able to get a job but would like to be in full-time employment. Note: If a mother left work to bring up a child or if someone went into higher education, they are not working but would not be classed as unemployed as they are not actively seeking employment. One grey area is voluntary unemployment. This occurs when the unemployed choose not to take a job a the going wage rate (e.g. wrong job, benefits too high…

Should low inflation be the primary objective of economic policy?

Should low inflation be the primary objective of economic policy?

The UK government has given the Bank of England an inflation target of CPI 2 % +/-1. The Bank of England is responsible for using monetary policy (e.g. interest rates)  to achieve this goal of low inflation. But, as well as targeting inflation, the Bank of England also has a wider remit of considering objectives such as economic growth.During 2008 and 2010 the UK had inflation above the target as Bank of England were more concerned about recession Summary – Should we…


Does Fiscal Policy solve unemployment?

Readers Question: Is the fiscal policy effective/the best policy to deal with unemployment? It is an interesting question and one that is likely to generate different views from within the ranks of economists. To give a very rough overview:Keynesians say yes, fiscal policy can be effective in reducing unemployment. In a recession, expansionary fiscal policy will increase Aggregate Demand (AD), causing higher output, leading to the creation of more jobs. Classical/monetarist economists say no. Fiscal policy will only cause a temporary increase in real output. In the long run, expansionary fiscal policy…


Types of 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 recessions, we can expect demand deficient unemployment (sometimes called cyclical unemployment) to increase significantly.Supply-side unemploymentFrictional – This occurs when people are in between jobs. For example, a school-leaver may take some time to get his first job….

claimant-count-lfs unemployment

Claimant count – unemployment

The claimant count records the number of people receiving unemployment benefits from the government. In the UK, the claimant count currently measures everyone who receives Job Seekers Allowance (JSA). To receive JSA, the applicant must be actively seeking work and provide evidence and commitment of efforts to find work. The claimant count method is one of two main measures of unemployment. The other method is the ILO Labour Force survey of unemployment.July 2015-  Claimant count 2.3%. ILO Labour force survey…


Investment and Aggregate Demand

Readers Question: What are the effects of increased investment on aggregate demand in the short term and the long term.Investment means capital expenditure (e.g. purchasing machines or building bigger factory) Investment is a component of AD –  AD+ C+I+G+X-M. Investment spending takes about 15% of AD; it is not as significant as consumer spending which is 61%.If Investment increases, then ceteris paribus, AD will increase. Effect of investment in the short-termThe increase in aggregate demand will lead to higher economic…

Structural unemployment

Structural unemployment

Structural unemployment is caused by a mismatch of skills between the unemployed and available jobs. Structural unemployed is caused by changes in the economy, such as deindustrialisation, which leaves some unemployed workers unable to find work in new industries with different skill requirements. Structural unemployment occurs even during periods of strong economic growth. It is a form of supply side unemployment and not insufficient aggregate demand (AD).  Policies to reduce structural unemployment include retraining and geographical subsidies. Fiscal or monetary policy to boost AD will be ineffective in solving structural…