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EMPLOYMENT AND UNEMPLOYMENT
Employment and unemployment definitions
Working age population
The usually resident, non-institutionalized civilian population of New
Zealand aged 15 years and over.
Labour Force
Members of the working age population who during their survey
reference week are classified as “employed” or “unemployed”
Employed
All persons in the working age population who during the reference
week worked for one hour or more for pay or profit in the context of
an employer/employee relationship or self employment; or worked
without pay for one hour or more in work which contributed directly to
the operation or a farm, business, or profession practice owned or
operated by a relative; or had a job but were not at work due to: own
illness or injury, personal or family responsibilities, bad weather or
mechanical breakdown, direct involvement in industrial dispute, or
leave, or holiday.
Unemployed
All persons in the working age population who during their reference
week were without a paid job, available for work and had either
actively sought work in the past four weeks ending with the reference
week, or had a new job to start within four weeks.
Not in the labour force
Any person in the working age population who is neither employed nor
unemployed. This includes:
Retired persons
Persons with personal or family responsibilities such as unpaid
housework and childcare
Persons permanently unable to work due to physical and/or
mental disabilities
Persons who are not actively seeking work
Unemployment rate
The number of unemployed persons expressed as a percentage of the
labour force. (Unemployed / Labour force x 100)
Labour force participation rate
The total labour force expressed as a percentage of the working age
population. (Labour force/working age population x 100)
New Zealanders and their sources of incomes
Households sell labour in order to earn an income with which to buy
the goods and services to satisfy their needs and wants. New
Zealanders can gain their incomes from one of four sources.
Wages and salaries
Self-employment
Government transfers (benefits)
Investment
Paid Employment
You are recognised as being productive officially if services are
exchanged for an income, for example wages, salary, commission.
Full-time employment People who are employed full time usually work
30 or more hours a week
Part-time employment People who are employed part time usually
work fewer than 30 hours per week
Unpaid employment
You can also be productive (and contribute to society) without
receiving an income, for example voluntary work like Red Cross. You
aren’t considered employed.
Total population
Employed
Unemployed
Working age population
Labour force
Under employment
When a person is employed but their skills and abilities are not put
into full use, for example a person who is overqualified for a job but
accepts it because they need the money. Part time workers who are
wanting full time and full time workers wanting overtime are also part
of this category.
Full employment
Not everybody can be employed at the same time, so full employment
has a certain level of unemployment. It is unavoidable because there
are always people between jobs, choose not to work, or are ill etc. This
is called the natural rate of unemployment.
Types of Unemployment
Frictional unemployment
This is the result of the natural turnover of the labour market. It
includes those that are between jobs and those attempting to enter or
re-enter the workforce. Seasonal workers whose jobs are out of
season (e.g. ski instructor) are also in this category. By definition,
frictional unemployment will always be present.
Cyclical unemployment
This is linked to changes in the production levels that accompany a
recession (and a depression) in the business cycle. This can be
affected by various government policies. A recession leads to a
decrease in output and therefore a decrease in employment.
Structural unemployment
This results from the market’s inability to match jobs with skills or
workers. (Location of employment does not coincide with those of the
workers) Structural unemployment may be because of a change in
final demand for a good or service, or an advancement in technology.
The three above are all involuntary unemployment.
Voluntary unemployment
There are people that choose not to work and use their time and still in
another way, for example to start a family. The current wage may be
too low and they will “hold out” for a higher wage. People that are
voluntarily unemployed include housewives and “hermits”.
Production possibility frontiers (PPFs)
These can also be called production possibility curves (PPCs). They
show the maximum possible combinations of two single goods that can
be produced by an economy. Each good is on an axis, and the
combinations are plotted. PPFs assume that the economy can only
produce two goods, all resources are fixed in quantity and used in
constant productivity, resources are used as efficiently as possible, and
technology is unchanging.
Good Y
Good X
Any point on or within the curve is theoretically possible as a
combination. A point on the curve represents full employment of
resources (human, land, capital), while a point within the curve shows
underemployment of resources and unemployment. Points outside of the
curve are currently unattainable with our given resources and
technology.
Measuring unemployment
Household labour force survey (HLFS)
Commences in 1985
Quarterly survey (done four times a year)
The target population for the household survey is the civilian,
usually resident non-institutionalised population aged 15 and
over
15000 private households are surveyed
To be unemployed, you need to be available for work and have
sought work in the past four weeks.
Census
Survey is done every 5 years
Every single member of the economy is surveyed on one night,
so it’s a “snapshot” of the economy
To be unemployed, you have to be actively seeking work and
available to begin work immediately
Registered unemployment
Those individuals who are receiving the unemployment benefit
are included
To be unemployed you must not be in full time work, available
for work and be actively seeking work. You must be a registered
“jobseeker”.
Registered jobseekers
Monthly measure
Have to be in the working age population, out of work and
seeking employment or working part-time and wanting full-time.
You must be registered with WINZ, but don’t have to be
receiving the unemployment benefit.
The labour market
The labour market is influenced by the supply and demand, like any
other market. Producers demand labour, and households supply it. The
price of labour is wages.
Demand for labour
The curve is downward sloping because as the price of the labour falls,
the quantity demanded by a firm rises.
Changes in productivity
If a worker’s productivity increases, then the quantity demanded will
fall. Firms receive better value for their money, and this is shown as a
movement up the curve.
How to increase productivity
Productivity can be increased by using better tools and machinery,
increasing the levels of training, improving motivation, and monetary
rewards or a bonus system.
Derived demand
The demand for labour comes from the fact that consumers are willing
and able to pay for certain goods and services that the labour is used
to product. For example, you may demand a Japanese watch, but you
don’t directly demand the Japanese watch technicians. It is the
demand for the final good that influences in demand for labour.
Supply of labour
As the wage rate falls, the quantity supplied of labour decreases. The
supply of labour will go vertical because it will reach a physical limit,
where there is full employment.
Labour market equilibrium
The actual wage that will be paid will be the equilibrium wage rate.
This is where demand and supply coincide, and it is also called the
market clearing rate, meaning no worker who wants a job at that
wage or lower is without a job, and no firm that wants an employee at
that wage or higher is left with a vacancy.
S
Workers to the right of the
equilibrium wage on the supply
curve are voluntarily
unemployed. Each occupation
will have a separate industry,
and a different equilibrium wage
rate e.g. doctors, hairdressers.
W*
D
Q*
Real and nominal values
We will now use (W/P) as the price of labour. The wage rate has been
adjusted for inflation and indicates the purchasing power of our
income. Nominal wages is the actual dollars that you get paid, while
real wages is the ability of your income to buy goods and services.
Your purchasing power may decrease if prices are rising faster than
wages.
Influences on supply and demand of labour
Change in final demand
Final demand is the demand for the goods and services. If we decide
we no longer want a certain good, our demand will change. It affects
the supplier because they will decrease supply as there is no market
for the good or service, so the demand for labour decreases.
Changes in technology
An increase in technology leads to an increase in productivity. The
technology may begin to replace workers. However it may not be a
threat because an increase in productivity leads to lower prices,
increased consumption and more jobs. Some jobs may become
obsolete as a result of technology, but more may be created, for
example computer technicians.
Change in supply of labour
A change in the supply of labour may be the result of:
The trade-off between work and leisure
Size and age structure of the population (net migration)
The number of the working age population that choose to
participate in the labour force
Education and training requirements
Disequilibrium in the labour market
An equilibrium is a state of satisfaction and stability. If the wage rate
drops below the equilibrium, a shortage of supply of labour will exist.
Similarly, a wage rate above the equilibrium leads to a surplus.
Wage rate
S
W1
We
D
Q
Qd
Qe Qs Qmax
Limitations of measuring unemployment
Household labour force survey
Only 15,000 private households are surveyed, and this is quite a
small sample size, so results may not be accurate.
The survey only began in 1985 so results from before that can’t
be compared
Census
Some people may refuse to do the survey, or interpret the
questions differently
It’s done only every five years so results become out of date
Can take some time to process the results
Questions may change from year to year, which makes results
difficult to compare
Registered unemployed
It’s up to the individual to register, and people that choose not
to register are not accounted for
Those who may be unemployed but aren’t eligible (for example if
their spouse has a job and earns over a certain amount) are not
included
The policies about who is eligible change from year to year,
making results difficult to compare.
Limitations of the PPF
You must assume that the economy can only produce two goods
because there are two axis
Assume that all resources are fixed
Assume that all resources are being used to their full
productivity
Assume that technology is being fully utilized