AS Business Impact on Business of unemployment

Lesson Objectives To be able to discuss unemployment, costs to the economy, opportunity cost and social cost To be able to discuss changes in occupational trends and changes in who works and the way we work To be able to complete some past paper questions

Starter Does anyone in your family have a job – who works? Mum / dad / brothers / uncles / aunties? Do you think this would have been the case in 1814 or 1914 (see poster)?

Who are the unemployed and how did they get “unemployed”? This is Bob he was made redundant from his last job. This is Jamie he has just finished school and hasn’t found a job yet. This is Gary he was fired from his job for being late too often. This is Tony he has quit his part-time job to give him more time to look for a full time job. This is Gurpal he was ill and had to give his job up. Now he is better and looking for work again.

Definition of unemployment Unemployment - The number of people willing to work but out of work and seeking work Unemployment rate - % of the working population out of work Current unemployment rate is 6.9%

Consequences of unemployment for business Those unemployed may have to buy more inferior goods meaning increased demand More workers available in the recruitment pool for businesses Unemployed workers may set up their own business online due to low barriers to entry Customers may switch from luxury goods to cheaper substitutes affecting luxury goods retailers

Consequences of unemployment for society Welfare payments to those on jobseekers allowance have to be paid out by the government from public money – contributed by every working person in their tax Jobseeker’s Allowance (JSA) is at least £57.35 a week to help people while they look for work. They also have to sign on at the jobcentre every 2 weeks and prove that they have been looking for work. Gov site on jobseekers

Opportunity cost of unemployment If the government is spending money on paying jobseekers allowance it cannot spend it elsewhere on health care the NHS or the police. This is the opportunity cost of unemployment. Government is unable to pay wages of these professionals because it is paying for the unemployed to receive jobseekers allowance

Costs to the unemployed and their dependants Also a loss of any benefits that the worker may have received (like a company car) or a yearly bonus This can have an impact on any regular bills and future spending plans such as holidays Loss of income for those unemployed Anyone unemployed – not working may not value any social and leisure time as they may feel they have not worked to earn it. Loss of value of leisure time Unemployment is still equated with failure coupled with the degrading experience of signing on and not being able to support their own families High rates of divorce and reduced life expectancy Social stigma Unemployed person may find the process of being out of work and searching for a new job very stressful this can lead to depression and a high suicide rate. Psychological costs

Social Costs of unemployment to the local community Negative affect of unemployment Increased crime and violence on the streets and vandalism (amongst the young and unemployed) Areas become run down, shops go out of business, households have no money to take care of their houses or gardens Economic depravation

Cost of unemployment to taxpayers Government pays out benefits such as housing benefit and jobseekers allowance to those who are unemployed Government has loss of tax revenue from those not working Loss of VAT from purchases that unemployed cannot make because they have no income As a result of these losses the government may have to borrow more money to keep spending levels the same

Costs of unemployment to the economy Loss of output of workers who are now unemployed but would have worked, and therefore a loss of goods that the economy could have produced had they been working – this reduces the country’s GDP and moves the country away from an efficient allocation of its resources Long term unemployed may become deskilled as they have not had training for a while, this reduces their chances of getting employment. E.g. To be an electrician they have to pass regular tests Rising unemployment is linked to a drop in demand for goods and services – which can lead to further unemployment

Occupational trends Traditionally the man went to work, now is it not unusual for a woman to work and have a family (equality laws have helped this) Rise of the self-employed Reduction in number of those working in manufacturing to just 8% of the workforce from 25% in 1973 (ONS) Amount of people working two jobs has doubled since the 70s Rise in those working part-time, flexi-time, temporary and zero hour contracts Deindustrialisation has lead to structural change so a shift in jobs from manufacturing and farming into the tertiary sector knowledge economy jobs; banking, finance, law http://www.telegraph.co.uk/finance/jobs/10486823/Tracking-Britains-changing-workforce-40-years-of-the-Labour-Force-Survey.html

Sample question 1 Analyse two ways in which business selling on eBay might be affected by increased unemployment in large cities [6]

Knowledge 2, Application 2, Analysis 2 Answer question 1 Knowledge 2, Application 2, Analysis 2 Knowledge/understanding: up to 2 marks are available for defining what is meant by unemployment e.g. the number of people willing and able to work but out of work (1 mark) and/or stating an effect on businesses of increasing unemployment e.g. less/more sales revenue (1 mark) and/or redundant may set up their own business (1 mark) Application: up to 2 marks are available for applying these factors to large cities e.g. an increase in the sale of cheaper/inferior goods sold online (1 mark) by unemployed people from cities like London/Nottingham/ Birmingham (1 mark), cities have a larger recruitment pool (1 mark) Analysis: up to 2 marks are available for giving a reason/cause/consequence of an increase in unemployment e.g. those businesses selling cheaper/inferior products may benefit as unemployed consumers switch to cheaper substitute goods online (1 mark); some businesses selling luxury goods may lose out because unemployed consumers can no longer afford these products (1 mark) ; may lead to unemployed workers setting up their own online businesses due to the low barriers to entry on eBay/increased competition for existing online sellers (1 mark)

Sample question 2

Answer question 2 Answer D – welfare payments • Unemployment is the number of people willing and able to work but out of work/out of work but actively seeking work/unemployment rate is the percentage of the working population out of work (1 mark) • An unemployed person will have to claim welfare benefits such as job seekers allowance whilst out of work (1 mark) • This can be a problem because the UK Government has less to spend on other public services (implied opportunity cost) (1 mark) Up to two of the marks above can be achieved alternatively by explaining distracters, e.g. • A is wrong because GDP will not increase with a rise in unemployment but will decrease due to workers not being economically active/reduced aggregate demand due to lower consumer spending (1 mark) • B is wrong because wage demands are likely to fall as there is a larger pool of workers to choose from/fear of losing their jobs (1 mark) • C is wrong because revenue from income tax will decrease rather than increase due to fewer people being employed and paying income tax to the government/ taxes may have to rise to pay for additional welfare payments in the UK economy (1mark)

Sample question 3 The regeneration of East London will change employment and output patterns in the region. Evaluate the likely impact of the Olympic Games on a) the residents of East London b) local businesses in East London [14]

Level 1 (1 mark) e.g. when people own a going concern providing a good or a service to the local community Level 2 ( 2-3 marks) e.g. The Olympics is expected to boost the economy not only in London but to other regions of the country. e.g. Many thousands of athletes and supporters will travel to the UK and will need goods and services such as food, accommodation, Merchandise Level 3 (4 marks) e.g. The consequences of the Olympic Games can be both positive and negative depending upon the success of the Games and how it is organised. e.g. the local businesses may need more employees (especially in the service industries) to cope with increased demand. This might reduce unemployment in the local area BUT some security and other services may not be provided by local businesses and may come from outside London Level 4 (5-7 marks) e.g. Visitors from home and abroad will come to London to watch the Games and this will benefit hotels, restaurants and other retail outlets from increased number of visitors. e.g. other attractions will also benefit e.g. London Eye e.g. There may not be as many visitors as anticipated depending on the global economy e.g. there has been concern over the long term benefits once the Olympic Games have finished, which may lead to unemployment within East London. e.g. Some of the events are being hosted in other parts of the country so there may be regional benefits to other local businesses e.g. some local businesses may have gained contracts to help in the construction industry to help build the venues.

Sample question 4 Briefly explain one reason why the government might want to reduce unemployment. [4]

Answer question 4 Knowledge: up to 1 mark is available for describing what is meant by unemployment levels e.g. unemployment is when a person is actively seeking work (1 mark) or why any Government would want to reduce unemployment.(1 mark) Application: up to 2 marks are available for contextualising the response by explaining why the Government would want to reduce unemployment levels in the UK e.g. the UK Government would want to reduce unemployment levels in order to reduce benefit payments (1 mark), reduce social costs (1 mark) , economic costs (GDP) (1 mark) and increase tax revenues (1 mark). Analysis: up to 1 mark is available for developing these reasons e.g. There is an opportunity cost of unemployment and the more people in employment, the better the economy is

Sample question 5 Evaluate the impact on an Indian business the effect of rising unemployment [7] This was half of a 14 mark question

Key points for question 5 e.g. Rising unemployment may affect the demand for a product and /or increase the number of potential workers available to choose from. e.g. Some Indian businesses may or may not be affected by a rising in unemployment - depends on the nature of the product. e.g. Changes in demand will depend upon YED and the scope and extent of the unemployment. It may present Indian firms with a wider choice of labour and even the opportunity to force down wages. A wider choice of labour will be of little use if they lack the required skills. Increased unemployment may reduce demand for goods and services within India.