<LOW UNEMPLOYMENT>

--🤔THINK AHEAD🤔--

"If you're jobless at 25, you must be unemployed, right?"

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"Let's watch the video below to find out!"

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--LET'S DISCUSS!--

"To be considered unemployed and part of official statistics, you must firstly be of 'working age,' which differs between countries, but in the UK is 16-65..."

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--WORKING AGE--

WORKING AGE, refers to those MEMBERS OF THE POPULATION who are aged between 16-65. LINK

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"...so if you are of working age and not working, are you officially unemployed?"

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"No, if this were the case, then you guys would be considered unemployed, and that would be ridiculous, as crucially you are not..."

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"...actively looking for work."

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"Therefore, the definition of unemployment is..."

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UNEMPLOYED

"UNEMPLOYED refers to people of ‘WORKING AGE’ who are ACTIVELY LOOKING for a job BUT WHO ARE UNABLE TO FIND WORK."

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--CALCULATIONS--

"So far we have the total number of unemployed people of working age, so what is the unemployment rate?" "Should we divide this unemployed population..."

A) "...by the general population?"

B) "...by the working-age population?"

C) "...by all those of working-age willing to work?"

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"The answer is C) "...by all those of working age willing to work," which obviously includes both the unemployed and the employed, which is referred to as the 'LABOUR FORCE'.

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--LABOUR FORCE--

"This refers to the total number of people that are unemployed and employed."

= UNEMPLOYED POP + EMPLOYED POP

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"Therefore..."

--UNEMPLOYMENT RATE--

"This measures the percentage (%) of the labour force that are unemployed."

= UNEMPLOYED POP / LABOUR FORCE * 100

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--PARTICIPATION RATE--

"This measures the percentage of the working-age pop. who are part of the labour force."

= LABOUR FORCE / WORKING AGE POP. * 100

**VIDEO**

"Why would the participation rate be very high in a country with subsidised childcare?"

--THINK AHEAD--

"Previously, we critiqued 'GDP per capita' as a gauge of well-being for the average citizen and realised it isn't really that representative! Ideally, what would we like the unemployment rate to tell us?"

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"Ideally, we would want it to represent the people who are willing to work if given the chance in a job that affords them a suitable standard of living given the hours and skills they desire and possess, right?"

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"However the official UR...."

--MEASURING DIFFICULTIES--

--🤔THINK AHEAD🤔--

HOW THE UR UNDERESTIMATES JOBLESSNESS.

"If we define 'a jobless person' as someone who 100% wants to work but has either stopped looking due to a lack of opportunity and has either become completely disillusioned or entered a re-training programme, or someone who is working in a job ('employed') that offers them work far below their desired hours or skill level, and which doesn't allow them to earn a living wage, do you think the unemployment rate will reflect this?"

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"In other words..."

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--THE UR IGNORES DISCOURAGED WORKERS--

"I lost my job and can't find anything else, so I've just given up looking. I guess I'm NOT technically unemployed now, so the UR falls, but should I be included in the unemployment statistics?"

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"The same can be said for those who RETIRE EARLY out of FRUSTRATION. Both these groups will not show up in official unemployment statistics despite wanting to work."

"So what is the 'TRUE UNEMPLOYMENT RATE'?, Well, in the US they have alternative measures, one of which is the U-6 – which not only considers the people out of work, but also those who are working part-time jobs when they want more ('underemployed'), or have stopped looking for work though they would say yes if actually offered a job (Discouraged'). See below the difference below the U-6 and the rate that is usually considered the official rate the u-3..."

--UR IGNORES PEOPLE RETRAINING--

"I lost my job as a teacher, and now I'm retraining as a prompt engineer, but because I've stopped looking to focus on my studies, I am no longer classed as unemployed, so the UR falls. Should I be included in the unemployment statistics?"
According to the strict definition of unemployment stated above, when workers aren't looking for work, then they aren't considered unemployed, yet at any one time, there are always a large number of people who have TEMPORARILY STOPPED WORKING & LOOKING FOR WORK in order to RETRAIN their skills, presumably because they can't get hired with their current skill sets.
In this situation, if these people decided not to retrain then they would be classed as structurally unemployed, yet because they decide to retrain, they are not classified as unemployed, yet they are still jobless, so the unemployment rate is lower that it should be.

--IGNORES UNDEREMPLOYED BY HOURS--

"I am working as a barman, but they only offer part-time work. I really want to work more, but I guess I'm still technically employed, so the UR won't reflect my struggles."
Unemployment statistics DO NOT DETAIL THE HOURS WORKED by the employed, as such they also include those workers who want to work more hours but can't ('THE UNDEREMPLOYED').
In the worst-case scenario some workers are on 'ZERO-HOURS' contracts, which make them technically employed, however, their contracts do not stipulate a fixed amount of hours and can vary form many to zero.
Because these people are included in the 'EMPLOYED POPULATION' the unemployment rate gives a misleadingly low rate.

--IGNORES UNDEREMPLOYED BY SKILLS--

"I have a degree and a master's, yet I can only find work in a bar, I really want to utilise my skillset, but I guess I'm still employed the UR won't reflect my wasted potential"
Unemployment statistics DO NOT DETAIL WHETHER WORKERS ARE DOING JOBS WHICH ALIGN WITH THEIR SKILLSETS, as such they also include those workers who are working in jobs that do not utilise their training and expertise, making them 'UNDEREMPLOYED'. E.g Mr.B working in KFC.
Whilst not being technically unemployed nor underemployed in terms of hours, these people can be seen as a "PRODUCTIVITY LOSS" and signal that the economy is not developing as it should.

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"So what is the 'TRUE UNEMPLOYMENT RATE'?, Well, in the US they have alternative measures, one of which is the U-6 – which not only considers the people out of work, but also those who are working part-time jobs when they want more ('underemployed'), or have stopped looking for work though they would say yes if actually offered a job (Discouraged'). See below the difference below the U-6 and the rate that is usually considered the official rate the u-3..."

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"...the LISEP goes even further. Its true rate of unemployment (TRU) not only considers those who are discouraged or underemployed but also includes anyone who is making less than $20,000 a year to factor in 'living wage' concerns, and the results are shocking."

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--THINK AHEAD🤔--

"Bad news, my fellow citizens: the unemployment rate has risen again under the disastrous stewardship of the opposition party. You must vote for me!"

"Hey, Mr. Opposition Leader. I heard that the UR is rising, but joblessness is on the decline, so things aren't getting worse!"

"Rubbish, that's not even possible you Wally!"

"...or is it???"

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HOW THE UR OVERESTIMATES JOBLESSNESS.

--UR IGNORES THE UNDERGROUND ECONOMY--

"I left the labour force years ago and have been tutoring one-on-one since. It's great, all cash in hand and no tax😉"

Unemployment figures do not include people working in the underground economy (or informal economy). This is the portion of the economy that is unregistered, legally unregulated and not reported to tax authorities. Some people may be officially registered as unemployed, yet they may be working in an unreported (underground) activity.

https://www.theglobaleconomy.com/rankings/shadow_economy/

https://pdfhost.io/v/7n05MJ79b_wp1817 (Size of informal sector)

--THINK AHEAD🤔--

"If it was reported that youth unemployment is at 50%, does that mean '50 out of every 100 young people, are unemployed?' or does it mean '50 out of every 100 young people who are in the labour force, are unemployed?'

"Which one gives the highest rate?"

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--THINK AHEAD--

"Despite a falling UR, what could this image possibly indicate with regard to who is being employed and who isn't?" "How would you describe the person on the right?"

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"That's right! The unemployment rate tells us nothing about the characteristics of the people unemployed. Is it concentrated on a certain age, race or gender, for instance?"

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--IGNORES POPULATION GROUPS--

--UNEMPLOYMENT BY REGION--

"It says unemployment is down to only 5%, but most of that is concentrated in my part of the country."

"Regions with declining industries may have higher unemployment rates than other regions, yet the UR doesn't take this into account."

--UNEMPLOYMENT BY GENDER--

"Despite the unemployment rate falling, the number of woman in the work force is still declining"
GENDER – women sometimes face higher unemployment rates than men.

--UNEMPLOYMENT BY ETHNICITY--

"Despite the unemployment rate falling, the number of ethnically Indian students getting employed remains low"
ETHNICITY – some ethnic groups may be disadvantaged due to discrimination, or due to lower levels of education and training.

--UNEMPLOYMENT BY AGE--

"Despite all the new jobs being created in the teaching industry, the number of over-55s being hired is declining."
AGE – youth unemployment (usually referring to persons under the age of 25) often face higher unemployment rates than older population groups, often due to lower skill levels; people who are aging also sometimes face higher unemployment rates as employers may be less willing to employ them

--UNEMPLOYMENT BY EDUCATION--

"Without a high-school education it is virtually impossble to get a job in most developed nations."
EDUCATIONAL ATTAINMENT – people who are relatively less skilled may have higher unemployment rates than more skilled workers (though in some countries higher unemployment rates may be found among highly educated groups).

--THINK AHEAD--

"Previously we introduced the idea of potential output as the maximum level of output that exists after which there would be upward pressure on the price level due to capacity restraints, right!

"This potential level of output, will inevitably have a corresponding level of 'derived demand' for workers right!

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"...and if we assume an unrestricted labour market where the demand for labour along with the supply of labour freely interact to determine the equilibrium level of real wage and labour quantity, we can call this quantity the 'full employment level of employment' and hence the potential level of output the 'full employment level of output.'

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"In other words any unemployent that exists at this full employment level comprises those members of the labour force that are looking for work, but currently not working as they are either unwilling to accept the current real wage or who are unable to find a job that fits their skills or location."

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"Let's see this scenario graphically!"

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--LABOUR MKT & AD/AS--

--SUPPLY OF LABOUR CURVE--

"The reward for work is the 'average real wage' (y-axis) and at any given real wage there are individuals (x-axis) who look at that specific real wage and say, "Yes, that is high enough to justify giving up my free time, and I am able to meet the skill requirements currently sought."

--LABOUR FORCE CURVE--

"...of course there are individuals who are registered as part of the workforce ('unemployed and looking') but look at that specific wage and say, "No, that is too low for my skill level," or "No, those specific jobs don't match my geographic location." or "No, I'm not qualified/suitable for those specific jobs." They stay in the total labour force because they want to work, but they choose to keep waiting or looking for a better match."

--DEMAND FOR LABOUR--

"The DEMAND FOR LABOUR is determined by those firms willing and able to demand those workers who 'have the required skill sets' and who 'will accept the job offers at each average real wage rate'."

--THE LABOUR MARKET DIAGRAM--

--FULL EMPLOYMENT & NRU--

--THINK AHEAD🤔--

"In 20 years' time, why might your children laugh when you tell them you used to wake up at 6, get on a school bus driven by a human, be checked in by a security guard, sit in a noisy cafeteria, and then spend six hours in a classroom with a human teacher writing in an exercise book?"

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--CAUSES OF UNEMPLOYMENT--

--@ FULL EMPLOYMENT--

NATURAL RATE OF UNEMPLOYMENT (NRU)

"So far we know that there is a level of unemployment that exists at 'FULL EMPLOYMENT' called the 'NATURAL RATE OF UNEMPLOYMENT (NRU)', which is in fact the sum of THREE distinct types of unemployment.

NRU = STRUCTURAL + SEASONAL + FRICTIONAL

NRU = ("Those not willing or able, but looking")

--CAUSES OF UNEMPLOYMENT--

STRUCTURAL UNEMPLOYMENT

STRUCTURAL UNEMPLOYMENT occurs as a result of...

1) CHANGE IN DEMAND for PARTICULAR TYPE of LABOUR SKILLS,

Due to GEOGRAPHICAL CHANGES, in the location of an entire industry, those who are unable to move will become structurally unemployed.
"My school has relocated far away, so there are no jobs here!"
Due to TECHNOLOGICAL CHANGES, some jobs become OBSOLETE, and all demand disappears. E.g, ATMs have replaced bank tellers
"I've been replaced by an AI tutor. I have no other skills!"
Due to STRUCTURAL CHANGES, which occur when an economy develops, often primary sector jobs will disappear and be replaced by secondary and tertiary jobs.
"I'm a farmer, but now the economy is all manufacturing!"

2) LABOUR MARKET RIGIDITIES are factors preventing the forces of supply and demand from operating in the labour market. They include:

MINIMUM WAGE LEGISLATION, which, if set above equilibrium, leads to a surplus of labour (aka unemployed people).
"Because of the high minimum-wage, I can't afford to hire people!"
LABOUR UNION ACTIVITIES and wage bargaining with employers, resulting in higher than equilibrium wages also causing unemployment
"The union members threaten to strike if I don't pay up!"
EMPLOYMENT PROTECTION LAWS, which make it costly for firms to fire workers (because they must pay compensation), thus making firms more cautious about hiring.
"It's impossible to fire unproductive staff, so we just won't hire!"
GENEROUS UNEMPLOYMENT BENEFITS, which increase the attractiveness of remaining unemployed and reduce the incentives to work.
"Unemployment benefits are so generous nobody wants to work!"

RWE "Alongside a sharp rise in the minimum wage and plans to impose a raft of new workers' rights, it is making it more expensive to take on staff."

--IS IT SERIOUS?--

YES!!! Because...

It’s usually LONG-TERM and even PERMANENT.
Involves a lack of demand for SPECIFIC SKILLS rather than a lack of general demand due to a recession; hence, expansionary demand-side policies are useless, and the problem will not improve cyclically.
SKILLSETS cannot be transferred to SUNRISE industries as often the industry that declines (SUNSET) is in the PRIMARY or SECONDARY sector e.g. Can a fisherman become a programmer?
Requires COSTLY GOV'T INTERVENTION, e.g. unemployment benefits

Note: In the case of structural unemployment, we assume that the wage rate does not fall immediately and the market creates excess supply of labour at the original wage after the demand falls. If the market adjusted immediately, then there would be no structurally unemployed as by definiton, the market has no excess supply (no one is looking to work and cant find work)

FRICTIONAL UNEMPLOYMENT

FRICTIONAL UNEMPLOYMENT "This refers to those unemployed workers who are 'BETWEEN JOBS', which means they are in the process of looking for work for the first time, or looking for a new job."

It is a ‘naturally occurring’ type of unemployment that is unavoidable and is not considered serious because…

It’s usually TEMPORARY*.
Does not involve lack of demand for skills.
Inevitable in GROWING economy. e.g. Moving between sunrise industries
Can be solved relatively easily compared to structural.
Caused mainly by incomplete information.
*Though it could turn structural if the person waits too long.

SEASONAL UNEMPLOYMENT

As the name suggests, this type of unemployment occurs due to the fact that demand for this type of worker is seasonal, and therefore in the 'OFF-SEASON', these worker are unemployed. Seasonal unemployment can be reduced by RETRAINING and UPSKILLING into ALL-SEASON careers. It is a ‘naturally occurring’ type of unemployment that is unavoidable.

--BELOW FULL EMPLOYMENT--

CYCLICAL UNEMPLOYMENT

"When an economy enters a RECESSION, AD falls, and unemployment caused by falling AD is referred to as CYCLICAL UNEMPLOYMENT, on account of the fact that it occurs during cyclical fluctuations in the business cycle."

--...ON AN AD/AS DIAGRAM--

--COSTS OF UNEMPLOYMENT--

--PERSONAL--

Being unemployed and unable to secure a job involves a loss of income, increased indebtedness as people must borrow to survive, as well as a LOSS OF SELF-ESTEEM. All these factors cause great PSYCHOLOGICAL STRESS, sometimes resulting in LOWER LEVELS OF HEALTH, FAMILY BREAKDOWN, and even SUICIDE.

--SOCIAL--

Greater social problems. High rates of unemployment, particularly when they are unequally distributed for the reasons noted earlier, can lead to serious social problems, including INCREASED CRIME and VIOLENCE, DRUG USE, and HOMELESSNESS.

--ECONOMIC--

A LOSS OF REAL GDP. Since fewer people work than are available to work, the amount of output produced is less than the level the economy is capable of producing.
A LOSS OF INCOME FOR UNEMPLOYED WORKERS. People who are unemployed will have reduced earnings.
A LOSS OF TAX REVENUE FOR THE GOV'T. Since unemployed people do not have income from work, they do not pay income taxes; this results in less tax revenue for the government.
COST TO THE GOV'T OF UNEMPLOYMENT BENEFITS. If the government pays unemployment benefits to unemployed workers, the less tax revenue left over to pay for important government-provided goods and services such as public goods and merit goods.
GOV'T COST OF DEALING WITH SOCIAL PROBLEMS. In addition, to unemployment benefits, the increased crime and social disorder that unemployment creates will inevitably lead to higher government expenditure on crime prevention, which again diverts funds away from public and merit goods.
MORE UNEQUAL DISTRIBUTION OF INCOME. Clearly, the loss of income for the unemployed will make the income gap wider, the effects of increasing income inequalities and resulting poverty tend to be concentrated among population groups who are more disadvantaged to begin with. If unemployment is high or tends to persist over long periods of time, this may lead to increased social tensions and social unrest.
THE CYCLICALLY UNEMPLOYED MAY BECOME LONG-TERM STRUCTURALLY UNEMPLOYED because if they are out of work for too long, their abilities and skills may become rusty, even worse these skills may become obsolete whilst firms find ways to manage with fewer workers through automation.

--VIDEO RESOURCES--

--PAST PAPERS--

--PAPER 1 (HL)--

--10-MARKER--

--15-MARKER--

Discuss the consequences of different types of unemployment.
Discuss whether the most important consequence of unemployment is a loss of income for individuals.
Evaluate government policies to deal with the different types of unemployment.
To what extent might unemployment represent an economic and social problem?
NOTE: The majority of 15 markers that are related to achieving economic objectives, such as low unemployment, focus on evaluating the policy responses e.g "Evaluate the effectiveness of fiscal policy as a tool to reduce unemployment.", so will be inlcuded later.

--PAPER 1 (SL)

10-MARKER

15-MARKER

NOTE: The majority of 15 markers that are related to achieving economic objectives, such as low unemployment, focus on evaluating the policy responses e.g "Evaluate the effectiveness of fiscal policy as a tool to reduce unemployment.", so will be inlcuded later.