unemployment

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…

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…

Trade off between unemployment and inflation

Trade off between unemployment and inflation

A look at the extent to which policy makers face a trade off between unemployment and inflation. The Phillips curve suggests there is a trade off between inflation and unemployment, at least in the short term. Other economists argue the trade off between inflation and unemployment is weak. Theory behind the Unemployment – Inflation trade off If the economy experiences a rise in AD, it will cause increased output. As the economy comes closer to full employment, we also experience a rise in inflation. However,…

Types of Unemployment

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 unemployment Frictional – This occurs when people are in between jobs. For example, a school-leaver may take some time to get his first job. There will always be some degree…

UK Devaluation of Sterling 1967

UK Devaluation of Sterling 1967

In 1967, the UK government of Harold Wilson devalued the Pound from $2.80 to $2.40 (a devaluation of 14%). It was a major political event because the government had tried hard to avoid a devaluation, but felt forced into the decision because of a trade deficit, a weak domestic economy and external pressures from creditors. Background to devaluation of 1967 The government pursued an exchange rate peg of £1 to $2.80. A strong Pound was seen as important for maintaining living standards and providing an incentive for manufacturers to increase productivity…

Historical Unemployment Rates

Historical Unemployment Rates

  UK unemployment rates since 1881.   This shows the fluctuations in unemployment over the past 100 years in the UK. Measuring unemployment is not a precise science. This data mostly relies on administrative statistics on the number claiming some kind of unemployment insurance. The government is changing how unemployment is measures. You can view the pdf for more detail on changing methodology of unemployment. Explaining the change in unemployment Cyclical…

The True Level of Unemployment in UK

The True Level of Unemployment in UK

Readers Question: To what extent do the official UK figures for unemployment accurately reflect economic reality? Summary The government publish two unemployment statistics – the Claimant count and Labour Force Survey. The Labour Force survey asks 60,000 whether they are actively seeking work. The claimant count is the number of those receiving job seekers allowance. The labour force is a better guide to unemployment because the claimant count only includes those eligible for benefits. Another factor to consider is the extent of disguised unemployment. This is when people are not counted as unemployed, but they…

The UK Unemployment Mystery

The UK Unemployment Mystery

A feature of the 2008-12 recession, has been a largely unexpected fall in UK unemployment.  Unemployment has fallen much quicker than previous recessions. For example, after the much milder 1981 recession, UK unemployment rose to over 3 million (around 11%) and remained high well until the mid 1980s. After the 1991 recession, unemployment again rose sharply, to just over 3 million. Also, in Europe, unemployment has recently…