Unemployment
The meaning of unemployment
Unemployment can be expressed either as a number or as a percentage.
The most usual definition that economists use for the number unemployed is: those of
working age who are without work, but who are available for work at current wage rates. Or
as a percentage, the percentage of the total labour force that are of working age, without
work, but are prepared to work at current wage rates.
The labour force is defined as: those in employment plus those unemployed.
The working-age population is the total population in a region that is considered to be able
and likely to work based on the portion of the population belonging to a certain
predetermined age range. The working-age population measure is used to give an estimate of
the total number of potential workers within an economy.
Official measures of unemployment
Two common measures of unemployment are used in official statistics.
The first is claimant unemployment. This is a measure of all those in receipt of
unemployment related benefits. In the UK, claimants receive the ‘job-seekers allowance’.
The second is the standard unemployment rate (main measure used by UK since 1998). In
this measure, the unemployed are defined as people of working age who are without work,
available to start work within two weeks and actively seeking employment or waiting to take
up an appointment (ILO approach).
The standard unemployment rate is likely to be the higher of the two, as not all people
seeking employment are on unemployment benefits.
The cost of unemployment
The costs to the unemployed themselves. There is a direct financial cost of the loss in their
earnings. Then there are the personal costs of being unemployed. The longer people are
unemployed, the more dispirited (may succumb to stress-related illness) and or deskilled they
may become.
The costs to the family and friends of the unemployed. Personal relations can become
strained, and there may be an increase in domestic violence and number of families splitting
up.
The broader costs to the economy. Unemployment benefits are a cost endured by tax payers.
Moreover, unemployment represents a loss in output. This underutilization of resources also
leads to lower incomes for:
, • Firms. They lose profits that they could have made, had there been full employment.
• The government. They lose tax revenues since the unemployed pay no income tax or
national insurance, and given that the unemployed spend less, they receive less in the
wat of VAT and excise duties.
• Other workers. They lose any additional wages that they could have earned from
higher national output.
The cost of unemployment can sometimes be offset by its benefits. From a nation’s point of
view, a workforce that is prepared to quit jobs and spend a short time unemployed will be a
more adaptable, more mobile workforce (one that is adaptable to changing economic
circumstances). Such a work force will lead to greater allocative efficiency in the short run
and more rapid economic growth over the long run,
However, for long-term involuntary unemployment the costs clearly outweigh any benefits
for the an individual, or the economy as a whole. A demotivated, deskilled pool of long-term
unemployed is a serious economic and social problem.
Unemployment and the labour market
The causes of unemployment fall into two broad categories: equilibrium unemployment and
disequilibrium unemployment.
The aggregate supply of labour curve shows the number of workers willing to accept jobs at
each wage rate. This curve is relatively inelastic since the size of the workforce at any one
time cannot change significantly. But, it is not totally inelastic because:
• A higher wage rate will encourage some people to enter the labour market
• The unemployed will be more willing to accept job offers rather than continuing to
search for a better-paid job
The aggregate demand for labour curve slopes downward. The higher the wage rate, the more
will firms attempt to economise on labour and to substitute other factors of production for
labour.
The labour market is in equilibrium at a wage of We (wage equilibrium) (where ADL =
ASL).
The meaning of unemployment
Unemployment can be expressed either as a number or as a percentage.
The most usual definition that economists use for the number unemployed is: those of
working age who are without work, but who are available for work at current wage rates. Or
as a percentage, the percentage of the total labour force that are of working age, without
work, but are prepared to work at current wage rates.
The labour force is defined as: those in employment plus those unemployed.
The working-age population is the total population in a region that is considered to be able
and likely to work based on the portion of the population belonging to a certain
predetermined age range. The working-age population measure is used to give an estimate of
the total number of potential workers within an economy.
Official measures of unemployment
Two common measures of unemployment are used in official statistics.
The first is claimant unemployment. This is a measure of all those in receipt of
unemployment related benefits. In the UK, claimants receive the ‘job-seekers allowance’.
The second is the standard unemployment rate (main measure used by UK since 1998). In
this measure, the unemployed are defined as people of working age who are without work,
available to start work within two weeks and actively seeking employment or waiting to take
up an appointment (ILO approach).
The standard unemployment rate is likely to be the higher of the two, as not all people
seeking employment are on unemployment benefits.
The cost of unemployment
The costs to the unemployed themselves. There is a direct financial cost of the loss in their
earnings. Then there are the personal costs of being unemployed. The longer people are
unemployed, the more dispirited (may succumb to stress-related illness) and or deskilled they
may become.
The costs to the family and friends of the unemployed. Personal relations can become
strained, and there may be an increase in domestic violence and number of families splitting
up.
The broader costs to the economy. Unemployment benefits are a cost endured by tax payers.
Moreover, unemployment represents a loss in output. This underutilization of resources also
leads to lower incomes for:
, • Firms. They lose profits that they could have made, had there been full employment.
• The government. They lose tax revenues since the unemployed pay no income tax or
national insurance, and given that the unemployed spend less, they receive less in the
wat of VAT and excise duties.
• Other workers. They lose any additional wages that they could have earned from
higher national output.
The cost of unemployment can sometimes be offset by its benefits. From a nation’s point of
view, a workforce that is prepared to quit jobs and spend a short time unemployed will be a
more adaptable, more mobile workforce (one that is adaptable to changing economic
circumstances). Such a work force will lead to greater allocative efficiency in the short run
and more rapid economic growth over the long run,
However, for long-term involuntary unemployment the costs clearly outweigh any benefits
for the an individual, or the economy as a whole. A demotivated, deskilled pool of long-term
unemployed is a serious economic and social problem.
Unemployment and the labour market
The causes of unemployment fall into two broad categories: equilibrium unemployment and
disequilibrium unemployment.
The aggregate supply of labour curve shows the number of workers willing to accept jobs at
each wage rate. This curve is relatively inelastic since the size of the workforce at any one
time cannot change significantly. But, it is not totally inelastic because:
• A higher wage rate will encourage some people to enter the labour market
• The unemployed will be more willing to accept job offers rather than continuing to
search for a better-paid job
The aggregate demand for labour curve slopes downward. The higher the wage rate, the more
will firms attempt to economise on labour and to substitute other factors of production for
labour.
The labour market is in equilibrium at a wage of We (wage equilibrium) (where ADL =
ASL).
