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Unemployment - PowerPoint PPT Presentation

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Unemployment. Return of Blue Sheets. WYSIWYG? “what you see is what you get!” Typical 4 marks available for describe… Identify 1 st & last data Calculate % change Describe the overall trend Identify any anomalies…. Or highest / lowest points. David Graham Blanchflower – MPC BoE.

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Return of Blue Sheets

  • WYSIWYG? “what you see is what you get!”

  • Typical 4 marks available for describe…

    • Identify 1st & last data

    • Calculate % change

    • Describe the overall trend

    • Identify any anomalies…. Or highest / lowest points.

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David Graham Blanchflower – MPC BoE

  • “In past recessions rising long-term unemployment had a persistent adverse effect on the supply potential of the economy. Rising unemployment may lead to a reduction in the supply capacity of the economy.

  • If workers remain unemployed for sustained periods they may lose their skills, thus reducing their human capital.

  • High rates of long-term unemployment in the economy may mean there is a mismatch between those skills that workers possess, and those for which there is demand. People may also be less likely to participate in the labour market the longer their spell of unemployment persists.”

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Key Issues

  • Recap Measures of unemployment

  • Recap different types of unemployment

  • Implications on the economy of unemployment

  • Policies to improve unemployment….

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Measuring Unemployment

  • A Working Definition of Unemployment

    • People able, available and willing to find work and actively seeking work – but not employed

    • The unemployed are included in the labour force

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Measuring Unemployment

  • The Claimant Count Measure

    • The number of people claiming the Jobseekers’ Allowance

    • Monthly count of unemployed

    • Currently ….. The claimant count was 1.23 million in January 2009, the highest figure since July 1999!

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Measuring Unemployment

  • The Labour Force Survey (ILO measure)

    • An internationally agreed standard measure of unemployment

    • Must have actively sought work in the previous four weeks and be available to start work immediately

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Current employment rates…

  • The number of people in employment fell by 12,000 on the quarter to reach 28.91m.

  • The number of people in full-time employment fell by 37,000 on the quarter to reach 21.22m.

  • The unemployment rate for October to December 2009 was 7.8%, unchanged on the quarter. The number of unemployed people fell by 3,000 over the quarter to reach 2.46m.

  • Dec 2009 statistics

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Types of Unemployment

  • Seasonal

    • Regular seasonal changes in employment / labour demand

    • Affects certain industries more than others

      • Catering and leisure

      • Construction

      • Retailing

      • Tourism

      • Agriculture

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Types of Unemployment

  • Frictional

    • Transitional unemployment due to people moving between jobs: Includes people experiencing short spells of unemployment

    • Includes new and returning entrants into the labour market

    • Imperfect information about available job opportunities can lengthen the period of someone’s job search

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Structural Unemployment

  • Structural

    • Arises from the mismatch of skills and job opportunities as the pattern of labour demand in the economy changes

    • Occupational immobility of labour

    • Often involves long-term unemployment

    • Prevalent in regions where industries go into long-term decline

    • Good examples include industries such as mining, engineering and textiles

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Cyclical unemployment

  • Cyclical (Keynesian)

    • There is a cyclical relationship between demand, output, employment and unemployment

    • Caused by a fall in aggregate demand leading to a loss of real national output and employment

    • A slowdown can lead to businesses laying off workers because they lack confidence that demand will recover

    • Keynes argued that an economy can become stuck with a low rate of AD and an economy operating persistently below its potential

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Real Wage Unemployment

  • Real Wage Unemployment

    • Created when real wages are maintained above their market clearing level leading to an excess supply of labour at the prevailing wage rate

    • Some economists believe that unemployment can be created if the national minimum wage is set too high

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Identify the consequences of unemployment on different stakeholders…

  • Using your Handout

    • Households/individual

    • Businesses

    • Economy

    • Government

    • Positive

    • Negative

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Firms stakeholders…




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Video clips stakeholders…

  • Newsnight – tour of UK

  • Dispatches….

  • http://www.channel4.com/video/dispatches/catchup.html

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Economic and Social Costs of Unemployment stakeholders…

  • The private costs for the unemployed

    • Loss of income

    • Fall in real living standards

    • Increased health risks

      • Stress

      • Reduction in quality of diet

      • Social exclusion because of loss of work and income

    • Loss of marketable skills (human capital) and motivation

      • The longer the duration of unemployment, the lower the chances of finding fresh employment - the unemployed become less attractive to potential employers

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Consequences of Unemployment (2) stakeholders…

  • Economic Consequences for Businesses

    • Negative consequences

      • Fall in demand for goods and services

      • Fall in demand for businesses further down the supply chain

      • Consider the negative multiplier effects from the closure of a major employer in a town or city

    • Some positive consequences

      • Bigger pool of surplus labour is available – but still a problem if there is plenty of structural unemployment

      • Less pressure to pay higher wages

      • Less risk of industrial / strike action – fear of job losses – leading to reduced trade union power

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Consequences of Unemployment (3) stakeholders…

  • Consequences for the Government (Fiscal Policy)

    • Increased spending on unemployment benefits and other income –related state welfare payments

    • Fall in revenue from income tax and taxes on consumer spending

    • Fall in profits – reduction in revenue from corporation tax

    • May lead to rise in government borrowing (i.e. a budget deficit)

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Consequences of Unemployment (3) stakeholders…

  • Consequences for the economy as a whole

    • Lost output (real GDP) from people being out of work – the economy will be operating well within its production frontier

    • Unemployment seen as an inefficient way of allocating resources – labour market failure?

    • Some of the long-term unemployed may leave the labour force permanently – fall in potential GDP

    • Increase in the inequality – rise in relative poverty

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Policies to reduce unemployment stakeholders…

Demand and supply side approaches

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Policies to improve unemployment… stakeholders…

  • Demand side policies

    • Monetary

    • Fiscal

  • Supply side policies

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    Demand side Policies to Reduce Unemployment stakeholders…

    • These are mainly measures to boost total labour demand (reduce cyclical unemployment)

      • Lower interest rates (a monetary policy stimulus)

      • A lower exchange rate (helps exporters)

      • Lower direct taxes (fiscal stimulus to spending power)

      • Government spending on major capital projects (e.g. improving the transport infrastructure)

      • Employment subsidies (including the New Deal programme) – designed to reduce the cost to a business of employing additional workers

      • Incentives to encourage flows of foreign investment in the UK – particularly in areas of above average unemployment

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    Supply-side policies to reduce Unemployment stakeholders…

    • Supply-side policies

    • These are measures to improve labour supply (reduce frictional and structural unemployment)

      • Increased spending on education & training including an emphasis on “lifetime-learning”)

      • Improved flows of information on job vacancies

      • Changes to tax and benefits to improve incentives

      • Measures designed to make the labour market more flexible so that workers have the skills and education that gives them improved employment options

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    What are the consequences of rising unemployment? stakeholders…

    • On circular flow of income?

    • On balance of payments? Imports and exports…

    • On govt finances? On tax revenue and govt spending…

    • On inflation?

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    Consequences of rising unemployment stakeholders…

    • The circular flow and the multiplier:

      • Incomes flowing into households will shrink

      • Rising unemployment adds to demand and creates a negative multiplier effect on incomes, demand and output.

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    Consequences of falling unemployment stakeholders…

    • Government finances:

      • With more people in out of work paying less income tax, national insurance and value added tax, the government can expect a large fall in tax revenues and an increase in social security benefits claims

    • Inflationary effects

      • Rising unemployment can also create a rise in lower inflationary pressure

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    Video clips stakeholders…

    • Newsnight – tour of UK

    • Dispatches….

    • http://www.channel4.com/video/dispatches/catchup.html

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    Tutor2U resources on unemployment stakeholders…

    • http://tutor2u.net/economics/presentations/unemploymentecon/player.html

    • I especially like the Blog links on the last slide.

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    Homework stakeholders…

    Reminder that you need to hand in Deflation case study next lesson