2. 15
The Labour Market
Unemployment is one of the major macro-economic performance indicators.
Fed – “Dual Mandate”
Keeping unemployment as low as possible is a major policy objective of the government.
WHY?
U.K Forward Guidance 1

3. Why high unemployment matters
Effect of unemployment depends on the type e.g. Structural more significant than frictional
Inside PPF; Allocatively and productively inefficient
Negative output gap
Economic Costs
Lost output
Inefficiencies
Fiscal Costs
Less tax revenue
Higher welfare payments
External Costs
Anti-social behaviour
Demands on NHS
Automatic stabilisers – G rises, helping AD
Income tax + N.I + VAT : >50% of UK tax revenue
Hysteresis and permanent effects could cause PPF to shift in
Automatic stabilisers – less tax revenue means less leakages
Workless households more likely to be in poverty… intergenerational issues…
Youth unemployment rising, more crime, more stress

4. Don’t confuse unemployment with inactivity
Stay-at-home parents
Unemployed are looking for a job; whilst Inactive are not in the labour market
Disabled
Retired
Students
Prisoners
The inactivity rate in the UK for those aged from 16 to 64 was 22 per cent
The unemployment rate is 7.2 per cent of the economically active population

5. As many people unemployed in UK as there are long-term sick

7. What are the causes of unemployment?
Look at the case studies on page 15. You have 2 minutes to work out which type of unemployment applies to the three people
You have 2 minutes 15
Charlie
Sarah
Andrew

8. What are the causes of unemployment?
Cyclical
Hidden
Frictional 15
Charlie
Sarah
Andrew

9. Types of unemployment (1)
Unemployment related to the process of changing jobs, which may involve a period out of work.
Frictional
The category of unemployed whose number varies according to the business or economic cycle.
Cyclical
Improve by: increasing flow of information – job centres
Demand-deficient / Keynesian
NB: Not just in a recession (e.g. in a boom, bankruptcy lawyers have no business!)

10. Types of unemployment (2)
When there is a mis-match between the skills of those unemployed and the skills that new jobs require.
Structural
Unemployment which is known to exist but is not included in the official government figures
Hidden
Improve by: supply-side policies such as retraining
Especially amongst illegal immigrants – evaluation on official figures

11. Types of unemployment (3)
This type of unemployment occurs when trade unions bargain for higher wages, which leads to fall in the demand for labour. 
Classical / real-wage
A type of unemployment that occurs due to the seasonal nature of the job is known as seasonal unemployment.
Seasonal
The more they push wages up, depending on the elasticity of labour supply and demand, the more unemployment
E.g. tourism

12. Key Facts about unemployment
Task : Using the chart, identify two significant points of comparison between UK unemployment and economic growth over the period shown. 16
Key Facts about unemployment
Demand-deficient (Keynesian) unemployment
Unemployment tends to LAG real GDP… Why?

13. Key Facts about unemployment16
Remember, if the question asks for a comparison then don’t just describe. What is the same? What is different? Is the level of change different for the two statistics? What’s the overall change over the course of the time period?
You have 2 minutes

14. Key Facts about unemployment16
Key Facts about unemployment
Task : Using the chart above, identify two significant points of comparison between UK unemployment and economic growth over the period shown.
Comparison 1
Unemployment has grown throughout the period, economic growth has been variable (add figures!)
ADD UNITS! %, £, levels, etc
Comparison 2
Largest increase in unemployment occurred during , during the same period economic growth was negative (add figures).

15. 16
What do you think are the current rates and levels (March 2014) for the categories below?
Statistic
Real statistic
Unemployment rate (as a % of the economically active population, Labour Force Survey)
Unemployment total (no. of people registered unemployed, Labour Force Survey)
Economically inactive (i.e. people without a job who have not actively sought work in the last four weeks)
Unfilled Vacancies (where employers are actively seeking additional workers)
Employment Total (the number of people over 16 in employment)
Youth Unemployment (the number of people aged 16 – 24 who are registered unemployed)
7.2%
2.34 m
8.94 m
144 k
30 m
950k

16. Key Facts about unemployment16
Key Facts about unemployment
In an evaluative question relating to unemployment you need to be able to DISAGGREGATE: demonstrate the importance of youth unemployment, long-term unemployment and the availability of jobs.
You will not be asked to state a macro-economic performance statistic. However, the ability to state a current trend may be a useful way of demonstrating knowledge to an examiner.

17. 25% of ALL Eurozone youth unemployed are in Spain!

18. Youth unemployment: Fears of a ‘lost generation’
Around a million young people are now unemployed across the UK.
Demographic of unemployment

19. Atrophy of skills
Hysteresis
Permanent effects

20. c.25% of UK’s youth unemployed have been unemployed are LONG TERM unemployment

21. Unemployment during the Recession
Analysis: Suggest three reasons why unemployment has not been as high during the economic downturn since 2008.
You have 2 minutes 17

22. Unemployment during the Recession
Period
Peak Unemployment Rate
12%
10.8%
present
8.4%
Reason 1
Higher proportion of part-time jobs / Zero hours contracts…
Reason 2
Employers less willing to make workers redundant (holding out for improvement in demand); Labour hoarding
Reason 3
Less available benefits/more robust benefit claim system

23. Unemployment during the Recession
Period
Peak Unemployment Rate
12%
10.8%
present
8.4%
Analysis: Suggest two possible consequences of this different pattern of unemployment.
Consequence 1
Employers keeping less effective workers
Productivity impact?
Consequence 2
Employers have a higher proportion of part-time workers

24. Unemployment during the Recession
Keeping less effective workers
Point:
Faced with falling output, firms are more willing to keep workers employed which suggests that they have been keeping some less productive workers.
Evidence for this:
Productivity levels in the UK have remained stagnant and have not improved (unlike during other recessions).
Explanation of why this is a problem:
Lower productivity leads to higher possible costs and potentially higher prices compared to competition (from abroad).
It depends upon…… (an evaluative point):
Other factors leading to lower productivity such as quality (and age) of machinery
leads to a lower levels of output

25. Unemployment during the Recession
Having a higher proportion of part-time workers
Point:
Evidence for this:
Explanation of why this is a problem:
It depends upon…… (an evaluative point):
leads to lower levels of consumption
Employers have seen an increase in the proportion of their workers who are part-time.
Statistics show an increase in the number of people who work part-time even though they wish to work full-time.
Part-time jobs attract a pro-rata level of wages, meaning that people earn less than if they worked full-time.
How much of their shortfall in income is compensated by any potential state benefits

26. Underemployment… Part-time employees who could not find full-time work
UK labour productivity (2010=100)
Underemployment…
Source: ONS
Source: Labour Force Survey - ONS

27. Exam question: Evaluate the policies that might be most effective in reducing youth unemployment in the UK.
Definition: Young people aged between 18 and 24 who are actively seeking work but are unable to find a job. 19

28. TWEEP Evaluation

29. Analysis: Explaining high youth unemployment – 16-24yrs17
Analysis: Explaining high youth unemployment – 16-24yrs
RULC?
Human Capital Problems
Reluctant Employers
Reduced retirement rates
Weakness of training schemes
Tax?
Both demand-side AND supply-side causes
Supply side issue?
Competition?

30. Exam question: Evaluate the policies that might be most effective in reducing youth unemployment in the UK. 19
Effects of unemployment depends on government’s response
Policy depends on cause of unemployment
Policy
Example
Targeted macro stimulus policies to boost growth
Expansion of apprenticeship schemes
Improving geographical mobility of labour
Measures to stimulate business start-ups
Active regional development policies
Reduce corporation tax
To include new skills such as brick-laying
Expansion of EU
Short term vs long term
New Employment Allowance to reduce NI contributions for new small businesses
Regional employment funds
No guarantee of success – quality not quantity of policy matters
Time lags

31. Using TWEEP T W E P 20 Reduce corporation tax
Immediate or delayed impact?
Policy
Impact
Targeted macro stimulus policies to boost growth T
Expansion of apprenticeship schemes W
Improving geographical mobility of labour E
Measures to stimulate business start-ups
Active regional development policies P
Productivity impact?
Reduce corporation tax
Efficiency – new skilled workers
To include new skills such as brick-laying
Improve female employment
Expansion of EU
New Employment Allowance
Regional unemployment priority
Regional employment funds
No guarantee of success – quality not quantity of policy matters
Time lags

32. Twitter: @tutor2u_econ
08/11/2018