2.5.4 Employment and unemployment


    Employment – all people between 16 and 64 in work

    Underemployment – those in paid work that does not fully utilise their qualifications or   forced into part-time employment

    Unemployment – the number of people able and willing to work, but unable to find a paying job. They are actively seeking work and can begin a job within two weeks.


    There are different measures of unemployment, the main two are the claimant count and the International Labour Organisation (ILO) measure:

    • The claimant count is the official measure based on the number of people claiming unemployment benefits such as the Job Seeker’s Allowance (JSA).
    • The problem with the JSA is that not all people seeking work will be eligible for it (e.g. if they have wealthy partners) or may not claim it anyway. This measure generally underestimates unemployment.
    • The ILO measure uses the Labour Force Survey (LFFS) to count the number of people able and willing to start work.
    • It directly asks people: if they have been out of work for 4 weeks, able/willing to start work in two weeks, and if they are available for one hour a week.
    • The LFS includes part time unemployment which gives a significantly higher number than the claimant count, especially as these people are unlikely to claim benefits.


    Structural unemployment à This is when there is a long-term decline in the demand for goods and services in an industry through structural change i.e. no longer need for the mining industry. People have the wrong skills for the employment on offer or labour is replaced by capital decreasing job opportunities.

    Frictional unemployment à This is the least problematic type of unemployment as it refers to when a person is between jobs. It is present in any economy as it is necessary but usually temporary.

    Occupational immobility à This is when the unemployed have a lack of transferable skills to move from one career to another. This is especially troubling when structural change in the economy makes industries redundant. This is caused by insufficient education, skills and training and can also be known as a skills mismatch.

    Geographical immobility à This is when employees (labour) cannot move to areas where jobs are available possibly due to family ties or housing costs. There is also variation in availability of housing and regional differences in housing costs.

    Technological unemployment à This when workers jobs are replaced by  machines due to technological advances. This links to structural unemployment, as fewer employees are needed in more and more industries due to this.

    Demand deficiency (cyclical) unemployment à This is caused by a downturn in the economic cycle. During these times overall demand will fall due to economic decline. Firms will either make workers redundant or pay lower wages which further reduces spending as well as output. This can be caused by increased productivity as each worker has a higher output meaning less workers are needed to produce the same quantity of goods.


    Firms : Higher unemployment creates a larger supply of labour. This means that firms can pay lower wages and reduce their costs as people are willing to work for lower pay. They will suffer from lower sales revenue as consumers have less disposable income. Producers of inferior goods will see a rise in sales. There are also the costs of retraining workers if they have been unemployed for a long time.


    Individuals: If they are unemployed, they will have less disposable income and perhaps lower standards of living as a result. The psychological impact may also influence their mental health. There is also a waste of resources as their skills are not being fully utilised.


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