Unemployment
Aims and Objectives
Aim:Understand types of unemployment
Objectives: Define 2 measures of unemploymentExplain current trends in UK & EUAnalyse causes of unemploymentEvaluate social costs of unemployment
Starter
Number of people willing and able to work but unable to find work.
http://www.bbc.co.uk/news/uk-17043305
2.67 million 8.4%
Unemployment
LFS & Claimant Count
LFS• Includes people who have looked for
work in the past month and are able to start work in two weeks.
Claimant Count• Includes people able to claim JSA.
Equilibrium Unemployment
• ALF = aggregate labour force of a nation.
• ASL = aggregate supply willing to work at W1.
• Unemployment = difference between ALF and ASL.
• Q2-Q1
ASL ALF
W1
ADL
Q1Q2
EMPLOYMENT
RWR
Re-create on your whiteboards and explain.
Replacement Ratio
• In the case of a low paid worker loosing their job the replacement ratio is one factor influencing time spent searching for a new job.
Replacement Ratio = disposable income out of work disposable income in work
• High level of benefits disincentives employment
• Ratio of 1 means receive same on benefits as would if employed.
• High ratio = unemployment trap
Replacement RatioAge Range JSA Maximum Amount
Under 25 £53.45pw
Over 25 £67.50pw
Couple £105.95pw
• Beauty Technician Job – Barton Le Clay £6.08ph 16 hours per week
• Calculate Replacement Ratio
• £53.45/£97.28 = 0.55
• The benefits received when unemployed 'replace' 55% of the worker's disposable income when in work.
Replacement RatioAge Range JSA Maximum Amount
Under 25 £53.45pw
Over 25 £67.50pw
Couple £105.95pw
• Over 25
• Care Assistant Dunstable £8.07ph25 hours pw
• Calculate Replacement Ratio
• £67.50/£201.75 = 0.33
• The benefits received when unemployed 'replace' 33% of the worker's disposable income when in work.
For which job is there more incentive to remain on benefits and unemployed?
Types of Unemployment
Task• Can you remember the five types of
unemployment in an economy?
Structural UnemploymentUnemployment due to
declining industries such as mining or ship building
Frictional UnemploymentPeople who are unemployed
between jobs
Cyclical UnemploymentGeneral unemployment
which follows the business cycle
Seasonal Unemployment
Unemployment from seasonal jobs, e.g. Fruit
picking
Technological Unemployment
Unemployment due to technological
advancements.
Cyclical Unemployment
• Arises during downturn/recession
• Fall in AD actual GDP lies below potential GDP – negative output gap
• Labour derived demand
• Unemployment rises
AD2 LRAS
P1
AD1
Y1Y2
PRICE LEVEL
REAL GDP
Classical Unemployment
• Wage rate increases
• More workers supply themselves QS
• Firms demand QD
• Unemployment QS-QD
ASL
ADL
Real Wage
Employment
Q1QD QS
W1
W2
Armies of the Unemployed
• What may be the social costs in the EU of high unemployment?