1. Unemployment Learning outcome AD Define unemployment
SBC Economics
Unemployment
Learning outcome AD
Define unemployment
Describe how unemployment is measured
Explain the types of unemployment
Describe the pattern of unemployment in the UK in recent years
Explain the causes of unemployment and explain the processes with AD/AS diagrams
Explain the effects, both negative and positive, of unemployment
Explain the concept of the natural rate of unemployment
Evaluate counter unemployment policy
Explain the original and Friedman Phillips curve concepts
Explain the concepts of a trade off between unemployment and inflation
Reading: Units 29, 86, 87 & 88

2. The number of people out of work at a given time
Unemployment
The number of people out of work at a given time

3. Measuring unemployment
Unemployment can be measured using two methods:
The claimant count
All those who register as unemployed
Used in the UK until 1997
Labour force survey (ILO)
A survey of the population to identify those unemployed
Used in the UK since 1998

4. Types of unemployment
There are various types of unemployment, the main types are:
Classical
Cyclical
Frictional
Seasonal
Structural

5. Types of unemployment Classical (real wage unemployment)
Classical unemployment exists when the wage rate is above the level that would create equilibrium in the labour market
In simple terms wages are too high but are unlikely to fall as wages are ‘sticky downwards’ reasons for this include minimum wages, union power and pay agreements
This can be shown using a supply & demand diagram for labour
The level of wages (W1) would provide equilibrium (Q1)
Wages however are too high (W2) the result is unemployment of (Q2 to Q3)

6. Classical (real-wage) unemployment
Real wage rate W2 W1 D O Q2 Q1 Q3
Quantity of workers

7. Types of unemployment Cyclical (demand-deficient)
Cyclical unemployment exists when the economy is in recession, unemployment rises because there is a fall in the demand for labour within the economy
This can be shown using a supply & demand diagram for labour
Lower demand means that the demand curve shifts in resulting in a decrease in employment
If wages do not fall then there will be unemployment of Q1 to Q2

8. Cyclical (demand-deficient) unemploymentS
Real wage rate W1 Q2 W2
D 1 D2 O Q1
Quantity of workers

9. Types of unemployment Structural
Structural unemployment exists when the demand for labour is less than its supply in an industry or area
One example is regional unemployment where there is higher unemployment one area of the country than another i.e. North-East of England
Another example is sectoral unemployment where there is a fast decline in an industry leaving many workers unemployed i.e. UK car industry
Structural unemployment is a serious problem however increasing the mobility of labour helps to reduce the problem

10. Types of unemployment Frictional (search)
Most people who lose their jobs move quickly into new ones, this is short-term unemployment and is known as frictional unemployment
It is not seen as a serious problem as there needs to be some movement of labour in an efficient economy
Better job information and help with searching will reduce the time it takes to find a new job and therefore reduce frictional unemployment

11. Types of unemployment Seasonal
Some employment is seasonal (people only work at certain times of year) i.e. fruit picking or tourism
Seasonal unemployment tends to rise in winter and fall in summer
There is little that can be done to reduce seasonal unemployment