Unemployment

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Unemployment occurs when a person is willing to work at the prevailing market rate but are unable to find work at that wage - unemployment exists.	The unemployment rate can be defined as the % of the total labour force without jobs.
A person may be "voluntarily unemployed" if for example their unearned income gives them the freedom to choose not to work. This person is not unemployed from an economics point of view but is simply putting leisure before income.	Unemployment is therefore an involuntary state. It is not unusual for labour force surveys of unemployment to indicate lower levels of unemployment than live register.
The economic cost of unemployment to society at large is the Forgone Output (Opportunity Cost) that could have been achieved if the unemployed was working.	This cost is spread across the society in terms of the higher taxes required to finance transfer payments to assist the unemployed.
Wider social costs deriving from relative poverty such as loss of self esteem, pressure on family life, etc. add greatly to the problems associated with unemployment.	When analysing unemployment it is important to distinguish between the short term and the long term unemployed.
Short term can be caused as people are between jobs or having just finished education are new to the labour force etc.	Long term unemployment is a much greater social problem than short term unemployment and will require different policy response from government.
Causes of Unemployment Unemployment can be classified into different types based on a range of different causes.	C, F, K, S. Classical Frictional Keynesian - Demand deficient Structural
Classical Unemployment So named by pre-Keynesian, classical economists. This type of unemployment is due to wages rates in labour market being above the market clearing wage.	According to the classical school, if labour markets were sufficiently flexible there would be no involuntary unemployment. Wages are being deliberately kept above the market-clearing level through the abuse of union power, minimum wage legislation etc.
Policy here would be to curb the power of trade unions engaging in restrictive practices and reduce real wages. Reductions in unemployment benefits may also be sought as a method to encourage people to accept lower wages and get the market to clear.	These policies concentrate on labour supply and see the problems in economic activity as stemming from supply side rigidity.
The Classical and Neo classical view point was that involuntary unemployment was impossible as fully flexible markets would clear themselves and the only remaining unemployment would be voluntary.	Policy us aimed at the ways to make fewer people "accept" unemployment. Classical Diagram Laissez faire Principles
Frictional unemployment is unemployment caused by those who are between jobs or have recently joined the labour force.	A modern economy is subject to continuous change, some firms expanding others closing or contracting. It follows that some portion of the labour force is constantly between jobs.
As the problem is not the shortage of jobs the appropriate policy is to keep those out of work informed about employment opportunities eg FAS. By this means frictional unemployment can be kept to a minimum.	Keynesian - Demand Deficient Unemployment Called Keynesian as it is due to the aggregate demand in the market being too low.
It could be argued that this type of unemployment is in fact due to wages and prices being too high for the existing level of aggregate monetary demand.	However Keynes regarded wages and prices as "sticky- downward" ie not flexible in a downward direction he recommended the use of fiscal policy to increase aggregate demand as the appropriate remedy, otherwise long term would exist for a long time.
Keynesian or Demand Deficient diagram. The Keynesian policy response was to stimulate the AD level by increasing levels of injections into the economy.	Investment and exports were constrained due to the lack of demand so the only other area of spending that could provide a boost to AD was government spending.
Keynes argued that government spending should be increased until the economy reaches full employment and all the spare capacity in the economy becomes utilized.	Spending should not be increased pass this point as it would cause inflationary pressures to creep into the economy through skill shortages due to the lack of excess capacity.
There are 3 other types of unemployment.	Seasonal unemployment Arises because only some industries are busy part of the year. e.g. tourist industry.
Residual Unemployment This is a "catch all" category and includes people who are unemployable because of physical or mental disability. It also includes "workshy". If a worker is unemployed for a long time it may mean that the worker is now unemployable.	Institutional Unemployment Due to obstacles in the mobility of Labour e.g. workers living in local authority housing where they have become unemployed, may find it difficult to move to a job in another area because of lack of similar housing. Can be improved by government providing local housing where required. It could also make social welfare payments less attractive.
Two measures of Irish unemployment. LR = Live Register QNHS = Quarterly National Household survey	The QNHS - surveys approx 39,000 households four times per year. It classifies the labour force as everyone aged 15 and over but then divides those whom are students, on home duties, retired or other.
The live register is based on all those signing on, whereas the labour force surveys is based on those seeking employment	The labour force quite simply is all those either working or actively seeking employment.
The QNHS allows those to classify their own employment status.	The LR counts as unemployed the people whom are registered at local offices of the Dept of Social Protection for either job-seekers benefit or job-seekers allowance.
The LR figures are published by the CSO on the last Friday of every month. It is not really designed to measure unemployment as it includes part time workers and seasonal/ casual workers entitled to JA or JB.	As per the last QNHS Quarter 4 2012 There were 2.14 million in the labour force. 1.45 million were not in the labour force.The total employed in Ireland was 1.8 million. Total unemployed was 294,600.
On the LR the standardised Unemployment rate (SUR) in April 2013 was 14.0% or 426,900 claimants unchanged from the March 2013 rate.	The seasonally adjusted figure from the QNHS was 14.2 % in the forth quarter of 2012.

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	Created by marinamcantwell over 11 years ago