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 …
A selection of graphs and statistics on UK unemployment. Also, looking at factors that explain UK unemployment and why unemployment has fallen in recent years. Raw data: Labour market data | Source: ONS MGSX (LFS) Current UK Unemployment rate An unemployment rate of 3.8%, (Dec 2019) – (UK Unemployment at ONS) The UK employment rate …
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
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.
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%
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 …
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:
The uncertainty of inflation leads to lower investment and lower economic growth in the long term.
Inflationary growth is unsustainable leading to a boom and bust economic cycle.
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.
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 …
In the past two decades, the UK has experienced a steady flow of net migrants into the economy. This net migration has had a wide-ranging impact on UK population, wages, productivity, economic growth and tax revenue. To what extent does net migration benefit the UK economy?
This shows that immigrant workers are likely to be in the mid-20s and 30s. It is this age group where workers are most flexible and willing to travel to find work. As they near retirement age, immigrant workers are more likely to return to the country of their origin. This age composition has implications for net contribution to tax revenues.
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.
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 are more sceptical.