The Luddite Fallacy


The Luddite fallacy is the mistaken belief that new technology leads to higher overall unemployment in the economy. New technology may cause disruption and some workers to lose their job, but the improved technology will also create jobs in other sectors of the economy – balancing out any jobs lost. Historical background In the early …

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Does inflation cause unemployment?


Readers Question: Does inflation causes unemployment?

There are a few different scenarios where inflation can cause unemployment. However, there is not a direct link. Often we will notice a trade-off between inflation and unemployment – e.g. in a period of strong economic growth and falling unemployment; we see a rise in inflation – see Phillips Curve.


Also, it is important to bear in mind, (especially in the current climate) If the economy has deflation or very low inflation and the monetary authorities target a modest rate of inflation, then this may help boost growth and reduce unemployment.

Inflation can cause unemployment when:

  1. The uncertainty of inflation leads to lower investment and lower economic growth in the long term.
  2. Inflationary growth is unsustainable leading to a boom and bust economic cycle.
  3. Inflation leads to a decline in competitiveness and lower export demand, causing unemployment in the export sector (especially in a fixed exchange rate).

Inflation creates uncertainty and lower investment

One argument is that a period of high and volatile inflation discourages firms from investing. Because inflation is high, firms are less certain investment will be profitable. It is argued that countries with higher inflation rates tend to have lower investment and therefore lower economic growth. Therefore, if there are poor levels of investment, this could lead to higher unemployment in the long term.

It is argued that countries with low inflation rates, such as Germany have enabled a long period of economic stability which helps to attain a long-term low unemployment rate. Low inflation in a country like Germany also helps them to become more competitive within the Eurozone, which also helps create employment and reduce unemployment.

See also: costs of inflation

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Impact of Immigration on UK Economy

In the past two decades, the UK has experienced a steady flow of net migrants into the economy. The 2016 Brexit vote has led to a sharp fall in net EU migration, but to a large extent this has been offset by a rise in non-EU migration. This net migration has had a wide-ranging impact on the UK population, wages, productivity, economic growth and tax revenue. Does net migration benefit the UK economy?


International Migration ONS

  • In 2021, Net long-term international migration was estimated to be +238,000 in 2016.
  • In 2021 Q4, there were 18.766 applications for asylum.
  • In 2019, there were 9.5 million people born outside the UK (estimated 14% of the UK’s population.) (5.8 million, non-EU, 3.6 million EU)

Inflows and Outflows


  • In 2019, the top 6 countries for the source of migrants was India, Poland, Pakistan, Romania, Ireland.

EU vs Non-EU immigration



Traditionally non-EU immigrants are more likely to come for family reasons, whilst EU migration has been focused on work.

Impact of Net Immigration on UK Economy

1. Increase in Labour Force

Migrants are more likely to be of working age. The majority of migrants come for work or study (students) They may bring dependents, but generally net immigration leads to an increase in the labour force, a decline in the dependency ratio and increases the potential output capacity of the economy.

2. Increase in aggregate demand and Real GDP

Net inflows of people also lead to an increase in aggregate demand. Migrants will increase the total spending within the economy. As well as increasing the supply of labour, there will be an increase in the demand for labour – relating to the increased spending within the economy. Ceteris paribus, net migration should lead to an increase in real GDP. The impact on real GDP per capita is less certain.


In fact, net migration can make economic growth look stronger than it is.  In the period 2005-2015, UK real GDP has increased significantly faster than GDP per head. See GDP per capita for more info.

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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 measured. You can view the pdf …

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UK Unemployment Stats and Graphs


A selection of graphs and statistics on UK unemployment. Also, looking at factors that explain changes in UK unemployment. Why unemployment was lower in 2000s and 2010s, and how Covid-19 will cause a sharp spike in unemployment.   Raw data:  Labour market data | Source: ONS MGSX (LFS) Current UK Unemployment rate An unemployment rate …

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Reasons for falling UK unemployment


Despite weak economic growth of the past decade, UK unemployment has fallen quicker than we might expect.  It appears the natural rate of unemployment has fallen and despite record employment levels, wage pressures remain muted. Different reasons for this fall in unemployment include – low productivity, more flexible labour markets, disguised unemployment (underemployment) and growth …

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Reasons for Youth Unemployment


A look at the economics reasons for high youth unemployment (16-25) in many western economies.

In the UK, youth unemployment has averaged higher than the main unemployment rate. This is is a similar situation to the US and European economies.

The reasons for youth unemployment include

  1. Lack of qualifications. Young people without any skills are much more likely to be unemployed (structural unemployment) A report by Centre for Cities suggest there is a correlation between youth unemployment and poor GCSE results in Maths and English. To some extent, the service sector has offered more unskilled jobs such as bar work, supermarket checkout and waiters. However, the nature of the labour market is that many young people lack the necessary skills and training to impress employers.
  2. Geographical Unemployment. Youth unemployment is often focused in certain areas – often inner cities where there is a cycle of low achievement and low expectations. For example, the employment rate for 16-24 year-olds is only 64% in the North East compared to a national average of 70%

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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 …

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