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Unemployment

Unemployment. Lesson 4. Aims. In this lesson you will examine: How unemployment is measured Causes of unemployment What is meant by demand deficient unemployment Types of unemployment. Objectives. In this lesson all students will be able to explain how unemployment is measured.

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Unemployment

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  1. Unemployment Lesson 4

  2. Aims • In this lesson you will examine: • How unemployment is measured • Causes of unemployment • What is meant by demand deficient unemployment • Types of unemployment

  3. Objectives • In this lesson all students will be able to explain how unemployment is measured. • Some students will be able to identify the types of unemployment and work out the causes of unemployment. • A few students will be able to explain demand deficient unemployment and draw the appropriate diagram.

  4. Unemployment • The unemployed are those individuals of working age who are actively seeking work but do not have a job. • Unemployment can be measured in two ways: • The claimant count. • The labour force survey.

  5. The Claimant Count • The claimant count measure of unemployment simply counts the numbers of claiming unemployment benefits on a given day each month. • http://news.bbc.co.uk/1/hi/uk/7753037.stml • http://tutor2u.net/economics/content/topics/unemp/measuring_unemployment.htm

  6. The Claimant Count Source: http://www.economicsonline.co.uk/Managing_the_economy/Measuring_unemployment.html

  7. The Labour Force Survey • The Labour force surveyis undertaken by the International Labour Organisation (ILO)and is a more direct assessment of unemployment, rather than those who claim benefit.  • It is based on an interview of a sample of 60,000 households and tries to measure ‘unemployment’ as a whole, rather than those simply claiming benefits.

  8. The Labour Force Survey • Source: http://www.economicsonline.co.uk/Managing_the_economy/Measuring_unemployment.html

  9. Comparison Source: http://tutor2u.net/economics/content/topics/unemp/measuring_unemployment.htm

  10. Types of Unemployment The Global Economy

  11. Demand Deficient Unemployment • Demand deficient unemployment is associated with an economic recession. • It is a form of disequilibrium unemployment as there is not enough demand to generate a job.

  12. Demand Deficient Unemployment • The Equilibrium level of national output (Y1) lies below the full employment level of national output (Yf) Price Level AS The Current level of demand (AD1) lies below the level required for full employment (AD) P AD P1 AD1 0 Y1 Yf Real National Output

  13. Demand Deficient Unemployment • Normally demand deficient unemployment exists when there is a recession. • It can also exist in the long run when there is an output gap.

  14. Real Wage (Classical) Unemployment • Real wage unemploymentis a form of dis-equilibrium unemploymentthat occurs when real wagesfor jobs are forced above the market clearing level.  • Traditionally,trade unionsand wages councilsare seen as the institutions causing this type of unemployment.

  15. Real Wage (Classical) Unemployment At real wage W1, there is an excess of labour. The supply of labour now exceeds the demand for labour and we have disequilibrium unemployment equal to Q2 –Q1. At the new minimum wage W1, the demand for labour has contracted from Q to Q1. While the supply of labour has expanded from Q to Q2. Real Wages Supply of Labour W1 Minimum Wage W Demand for Labour Q1 Q Q2 Employment

  16. Equilibrium Unemployment • Equilibrium unemployment is unemployment that can exist even when the demand for labour is equal to the supply of labour. • There are two types of equilibrium unemployment: • frictional • structural

  17. Frictional Unemployment • Frictional unemployment is transitional unemployment due to people moving between jobs.

  18. Structural Unemployment • Structural unemployment exists where there is a mismatch between their skills and the requirements of the new job opportunities.

  19. Structural Unemployment • Structural Unemployment is caused by immobility of labour: • Occupational immobility. • Geographical immobility.

  20. Costs of Unemployment • Lost Output • Impact on government finances • Training resources are wasted • Rising unemployment is linked to social and economic deprivation.

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