Unemployment

Overview

Unemployment refers to the situation where individuals who are capable of working and are actively seeking work are unable to find employment.
It is an economic condition that is usually cyclical or structural in nature.
It is a key issue for managing the national economy as it impacts economic growth, inflation, and public finances.

Frictional Unemployment: This refers to short-term unemployment arising from the normal job search process. It is often seen as necessary for a functioning economy.
Seasonal Unemployment: This refers to unemployment that occurs due to fluctuations in demand at certain times of the year.
Structural Unemployment: This arises when there’s a mismatch between the skills workers have and the skills demanded by employers.
Cyclical Unemployment: This is caused by a downturn in the economy. It rises during a recession and falls during an economic boom.

The Unemployment Rate is the most widely used measure. It’s the proportion of the labour force that is jobless.
The Claimant Count measures the number of people claiming unemployment-related benefits.

Causes include economic downturns, technological changes, structural shifts in industries, and policies that affect labour demand and supply.
Consequences of high unemployment include potential loss of GDP, social problems such as crime and health issues, and increased government spending on benefits.

Demand-side Policies: These include fiscal and monetary policy measures aimed at stimulating aggregate demand to create more jobs.
Supply-side Policies: These aim to improve the functioning and flexibility of labour markets by addressing structural issues causing unemployment.

High unemployment results in a loss of output to the economy as it’s not fully utilising its resources.
It can lead to increased government expenditure on unemployment benefits and reduced income from taxes.
It can result in a decline in skills and human capital as unemployed workers lose specific skills or experience decreased morale over time.

It doesn’t account for underemployment where individuals have part-time jobs but wish to work full-time.
It doesn’t capture discouraged workers who have given up job-seeking due to lack of success.
It doesn’t include those involved in the informal economy or illegal activity.
It may also overlook quality of employment, focusing only on whether individuals have a job or not.