Employment and Unemployment (Copy)

4.7.1 Definition of Employment, Unemployment and Full Employment

• Employment: When people of working age (usually 15–64) who are willing and able to work have a paid job (either full-time or part-time).
• Unemployment: When people of working age who are willing, able, and actively seeking work cannot find a job.
• Full employment:
  • Not 0% unemployment.
  • Means almost all available labour resources are being used.
  • Only frictional unemployment exists (short-term job searching).
  • Unemployment rate is at its natural rate (approx. 3–5% in many economies).

Diagram: Employment vs Unemployment

Labour Force
 ├─ Employed (working)
 │    ├─ Full-time
 │    └─ Part-time
 └─ Unemployed (not working but actively seeking work)

4.7.2 Changing Patterns and Level of Employment

• Sectoral shifts with development:
  • Primary sector (farming, mining) → falls as economy industrialises.
  • Secondary sector (manufacturing) → rises then declines in mature economies.
  • Tertiary sector (services) → rises strongly in developed economies.
• Gender changes:
  • Increasing proportion of women in labour force due to social, cultural, and legal reforms.
• Informal to formal shift:
  • Developing economies: more workers in informal sector (street vendors, casual labour).
  • As economy grows: more formal sector employment (contracts, taxes, regulation).
• Public vs private sector:
  • Early stages: large government/public sector.
  • Later: more private sector jobs with market economy reforms.
• Globalisation impact:
  • Outsourcing, offshoring → job patterns change internationally.
  • Growth in IT, finance, tourism, health care, etc.

Diagram: Structural employment shift

Employment share by sector
  ↑
  |   Tertiary  ────────────╮
  |   Secondary      ╭──────╯
  |   Primary   ╭────╯
  |
  +──────────────────────────────→ Economic development

4.7.3 Measurement of Unemployment

• Claimant Count Method:
  • Counts people receiving unemployment benefits.
  • Advantage: quick, cheap, regularly updated.
  • Disadvantage: excludes those not eligible/claiming benefits.
• Labour Force Survey (ILO method):
  • Household survey asking people if they are unemployed and actively seeking work.
  • Advantage: internationally comparable, broader coverage.
  • Disadvantage: expensive, sample errors possible.
• Unemployment rate formula:

Unemployment rate = (Number of unemployed ÷ Labour force) × 100

Example:

• Labour force = 50 million
• Unemployed = 2.5 million
• Rate = (2.5 ÷ 50) × 100 = 5%

Diagram: Labour force breakdown

Total population
 ├─ Not in labour force (students, retired, disabled)
 └─ Labour force
     ├─ Employed
     └─ Unemployed

4.7.4 Causes / Types of Unemployment

• Frictional unemployment:
  • Short-term job search while moving between jobs.
  • Example: graduates looking for first job.
• Structural unemployment:
  • Mismatch between workers’ skills and available jobs.
  • Example: coal miners losing jobs as economy shifts to renewable energy.
• Cyclical (demand-deficient) unemployment:
  • Caused by lack of total demand during recession.
  • Firms cut jobs when sales fall.
• Seasonal unemployment:
  • Jobs tied to specific seasons (tourism, agriculture, retail).
• Technological unemployment:
  • Caused by automation and new technologies replacing labour.

Diagram: Types of unemployment

Unemployment
 ├─ Frictional (search)
 ├─ Structural (skills mismatch)
 ├─ Cyclical (recession)
 ├─ Seasonal (time of year)
 └─ Technological (automation)

4.7.5 Consequences of Unemployment

For Individuals

• Loss of income and living standards fall.
• Mental health issues (stress, depression, loss of confidence).
• Lower future employability (skills atrophy, stigma).

For Firms

• Lower demand for products → less revenue.
• Cheaper wages available if unemployment is high.
• But long-term: smaller market size and weak demand.

For Government

• Tax revenue falls (less income and spending tax).
• Government spending on benefits rises.
• Budget deficit may increase.

For the Economy

• Wasted resources (labour not used → PPC point inside curve).
• Lower GDP growth.
• Higher inequality and social unrest.

Diagram: Economy inside PPC due to unemployment

       Goods (Y)
        |
        |          
        |    *
        |  Point inside PPC (underutilisation)
        |          
        |__________________________ Services (X)

4.7.6 Policies to Reduce Unemployment

Demand-side Policies

• Expansionary fiscal policy:
  • ↑ government spending → job creation.
  • ↓ taxes → higher consumption and investment.
• Expansionary monetary policy:
  • ↓ interest rates → cheaper loans, more spending, investment.

Supply-side Policies

• Education and training → improve skills, reduce structural unemployment.
• Apprenticeships, retraining programs.
• Labour market reforms:
  • Reduce minimum wage rigidity (if causing unemployment).
  • Improve job matching services.
• Deregulation/privatisation → boost business growth, new jobs.
• Lower direct taxes → increase incentives to work.

Other Measures

• Subsidies to firms hiring unemployed workers.
• Support for new business startups.
• Regional development policies → jobs in high-unemployment areas.

Diagram: Policies tackling unemployment

Unemployment ↓
 ├─ Fiscal policy (G ↑, T ↓)
 ├─ Monetary policy (interest ↓)
 ├─ Education/training ↑
 ├─ Job subsidies
 ├─ Labour reforms
 └─ Regional development