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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