Employment and Unemployment

Key Concepts:

Full employment: This refers to a situation where everyone who wants a job can have work hours they need.
Unemployment: This is defined as the state of being without a paid job but available to work.
Involuntary unemployment: This refers to a scenario where individuals are willing to work at the prevailing wage rate but are unable to find work.
Voluntary unemployment: This is when individuals choose not to work at the prevailing wage rate.

Types of Unemployment:

Cyclical Unemployment: This is caused by a lack of demand for goods and services, which occurs during periods of economic downturn or recession.
Structural Unemployment: This arises from changes in the economy that result in a significant loss of jobs in certain industries.
Frictional Unemployment: This results from the time it takes for people to find a job that suits their skills, tastes, and locations, often due to lack of job information.
Seasonal Unemployment: This occurs when people are unemployed at certain times of the year because they work in industries where they are not needed all year round.

Impacts of Unemployment:

Economic Costs: Unemployment leads to a waste of resources since an economy’s labour potential is not fully utilised.
Fiscal Costs: Higher unemployment leads to higher benefit payouts and lower tax revenues, which would escalate public sector borrowing levels.
Social Costs: Unemployment can lead to an increase in crime, mental health issues and social unrest.

Government Policies to Tackle Unemployment:

Monetary Policy: Lowering interest rates to stimulate demand and create more jobs.
Fiscal Policy: Increasing government spending to create additional jobs or reducing taxes to stimulate demand.
Supply-side Policies: These include education and training to reduce structural and frictional unemployment, regulation and deregulation policies to encourage business competition, and policies to promote labour market flexibility.

Measures of Unemployment:

Labour Force Survey (LFS): Provides internationally agreed definitions of employment, unemployment, and economic inactivity.
Claimant Count: Measures the number of people claiming benefits principally for the reason of being unemployed.

Remember, unemployment can pose significant social and economic challenges. Thus, effective policy measures need to be implemented to ensure the smooth functioning of the labour market.