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Unemployment Aims and Objectives Aim: Understand types of unemployment Objectives: Define 2 measures of unemployment Explain current trends in UK & EU Analyse causes of unemployment Evaluate social costs of unemployment Starter Unemployment Number of people willing and able to work but unable to find work. http://www.bbc.co.uk/news/u k-17043305 2.67 million 8.4% LFS & Claimant Count LFS • Includes people who have looked for work in the past month and are able to start work in two weeks. Claimant Count • Includes people able to claim JSA. Equilibrium Unemployment RWR ASL ALF W1 ADL Q2 Q1 • ALF = aggregate labour force of a nation. • ASL = aggregate supply willing to work at W1. • Unemployment = difference between ALF and ASL. • Q2-Q1 EMPLOYMENT Re-create on your whiteboards and explain. Replacement Ratio • In the case of a low paid worker loosing their job the replacement ratio is one factor influencing time spent searching for a new job. Replacement Ratio = disposable income out of work disposable income in work • High level of benefits disincentives employment • Ratio of 1 means receive same on benefits as would if employed. • High ratio = unemployment trap Replacement Ratio Age Range JSA Maximum Amount Under 25 £53.45pw Over 25 £67.50pw Couple £105.95pw • Beauty Technician Job – Barton Le Clay £6.08ph 16 hours per week • Calculate Replacement Ratio • £53.45/£97.28 = 0.55 • The benefits received when unemployed 'replace' 55% of the worker's disposable income when in work. Replacement Ratio Age Range JSA Maximum Amount Under 25 £53.45pw Over 25 £67.50pw Couple £105.95pw • Over 25 • Care Assistant Dunstable £8.07ph 25 hours pw • Calculate Replacement Ratio • £67.50/£201.75 = 0.33 • The benefits received when unemployed 'replace' 33% of the worker's disposable income when in work. For which job is there more incentive to remain on benefits and unemployed? Types of Unemployment Task • Can you remember the five types of unemployment in an economy? Structural Unemployment Unemployment due to declining industries such as mining or ship building Frictional Unemployment People who are unemployed between jobs Cyclical Unemployment General unemployment which follows the business cycle Seasonal Unemployment Unemployment from seasonal jobs, e.g. Fruit picking Technological Unemployment Unemployment due to technological advancements. Cyclical Unemployment PRICE LEVEL AD1 LRAS AD2 • Arises during downturn/recession • Fall in AD actual GDP lies below potential GDP – negative output gap P1 • Labour derived demand Y2 Y1 REAL GDP • Unemployment rises Classical Unemployment • Wage rate increases • More workers supply themselves QS • Firms demand QD • Unemployment QS-QD Real Wage ASL W2 W1 ADL QD Q1 QS Employment Armies of the Unemployed • What may be the social costs in the EU of high unemployment?
