How Has The Uk Labour Government Kept Unemployment At A Minimum?

How has the UK Labour Government kept Unemployment at a Minimum?

Introduction

In this assignment I will be analysing the macroeconomic concept of unemployment and how within the UK it has been reduced.

Firstly I will produce an in-depth report on unemployment, what is unemployment and how is it measured. I shall then study the various types of unemployment and causes of such unemployment.

I shall be analysing the economic effects of unemployment and how this can affect the economy. I shall identify the costs and benefits of unemployment and then assess the effects and impacts within the economy.

I shall also identify various types of policies used by the UK Labour government to overcome unemployment.

Unemployment

The unemployed are those registered as able, available and willing to work at a going wage rate in any suitable job who cannot find employment.

Unemployment measures the number of people who are out of work at a given period of time. However, each month workers lose their jobs while others find new employment. Unemployment will fall if the flow of workers finding employment is greater than the number of workers losing their jobs.

Unemployment is a problem encountered when there are people able and willing to work but unable to find jobs. This leads to a loss of potential output, which cannot be regained.

Unemployment is measured in two different ways, one being the Claimant Count and the other being the Labour Force Survey.

The Claimant Count

The Claimant Count measures unemployment, and includes those people who are eligible to claim Job Seekers Allowance (JSA). Those who satisfy the criteria to receive JSA for six months and then move on to special employment measures are recorded by the claimant count.

However accurate this may be, this measure excludes many people who are interested in finding work and those who may have searched for work in the recent period. If people do not meet the criteria for receiving JSA then they will not be recorded within this type of measure. In 2002 the average monthly figure for the claimant count was 945,000, equivalent to 3.1% of the labour force.

Labour Force Survey

The labour force survey is another measure of unemployment in the UK. This measure takes into account those people who have looked for work in the last month and are able to start work within the next two weeks. On average the Labour Force Survey has exceeded the Claimant Count by 400,000 in recent years.

What are the types of unemployment?

There are various types of unemployment within the UK due to a dynamic labour market.

Frictional Unemployment

Frictional Unemployment is transitional unemployment due to people moving between jobs. Many people are unemployed for a short time whilst involved in job search. This type of unemployment reflects job turnover within the labour market. Even when there are vacancies it takes people time to search for employment. During this period of time workers will remain frictionally unemployed.

Imperfect information in the labour market may cause frictional unemployment worse if jobless people are unaware of the available employment opportunities. Some of those who are unemployed may opt not to work because they believe that the tax and benefit system will reduce significantly the net increase in income from taking paid work. When this occurs there is a disincentive for the unemployed to find work. Improved information can reduce frictional unemployment so the various contributions of Job Centres may be useful.

Structural Unemployment (Long Term)

Structural Unemployment occurs when people are made unemployed because of capital labour substitution (reduces the demand for labour) or when there is a long-term (structural) decline in demand in a particular industry. People are made redundant from a declining industry but lack the appropriate skills to enter a growing industry or are located a long way from the jobs available. Many employees from the heavy industry (e.g. coal mining, steel etc) have found it hard to find employment without an investment in re-training.

This type of unemployment exists when there are job vacancies, due to a mismatch between the skills of job seekers and those required by employees.

This problem is one of occupational immobility. For example, it would be difficult for a redundant Selby Coal Miner to take a job instantly in an IT based call centre. Likewise, workers laid off from a Steel Plant would find it difficult to fins a job in the service sector. Structural unemployment is often centred on certain regions due to long term decline in traditional industries such as coal, steel, textiles and shipbuilding. Employment in such sectors reduced due to intense overseas competition and high technological advances. Although the labour government's Welfare to Work programme funded by the Windfall Tax on privatised utilities has attempted to reduced long-term unemployment by increasing the human capital of the unemployed and improving their employability in the eyes of potential employers. Supply-side policies such as training and retraining may be needed to deal with this type of unemployment. Regional policy and regeneration measures can be helpful too.

Long-term unemployment occurs when workers fail to find new paid employment after six months of unemployment. Many workers remain out of work for very long periods and the economic and social costs are much higher than for those experiencing transitory periods of unemployment. Most of the long-term unemployed are out of work for structural reasons.

The graph above shows the rate of long-term unemployment in the UK using the labour force survey measure. Gradually, the scale of long-term unemployment has fallen during the late 1990s.

Cyclical Unemployment "Demand Deficient Unemployment"

Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services. This is also known as Keynesian "demand deficient" unemployment and is associated with the transition of the economy through the business