3.3.1 3.3.2 LOW UNEMPLOYMENT 3.3.3

• According to the strict definition of unemployment stated above, when workers are looking for work and are unable to find it, they are considered unemployed, however, if they FEEL DISCOURAGED and DECIDE TO GIVE UP due to LACK OF OPPORTUNITIES, they will not be considered unemployed anymore as they are not looking, even though they want to work. 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.

*** VIDEO: WHAT IS A DISCOURAGED WORKER? ***

• 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.

• 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.

• 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.

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)

REGION – regions with declining industries may have higher unemployment rates than other regions.

GENDER – women sometimes face higher unemployment rates than men.

ETHNICITY – some ethnic groups may be disadvantaged due to discrimination, or due to lower levels of education and training.

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

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).

Given that these employed members account for the labour input into national output (Real GDP), we can conclude that THE EQUILIBRIUM LEVEL OF EMPLOYMENT IN THE LABOUR MARKET (THE EMPLOYED POP.) corresponds to THE FULL EMPLOYMENT LEVEL of REAL GDP while the UNEMPLOYED POP. corresponds to THE NATURAL RATE OF UNEMPLOYMENT (NRU).

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.

• Due to TECHNOLOGICAL CHANGES, some jobs become OBSOLETE, and all demand disappears. E.g, ATMs have replaced bank tellers 

• Due to STRUCTURAL CHANGES, which occur when an economy develops, often primary sector jobs will disappear and be replaced by secondary and tertiary jobs.

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).

• LABOUR UNION ACTIVITIES and wage bargaining with employers, resulting in higher than equilibrium wages also causing unemployment

• EMPLOYMENT PROTECTION LAWS, which make it costly for firms to fire workers (because they must pay compensation), thus making firms more cautious about hiring

• GENEROUS UNEMPLOYMENT BENEFITS, which increase the attractiveness of remaining unemployed and reduce the incentives to work.

--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 cyclical.

• 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 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. 

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.

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