Employment and unemployment

The labour force, or economically active population, includes all people of working age who are either employed or actively seeking employment. The size of the labour force relative to the population is measured by the labour force participation rate. In recent decades, many countries have seen a rise in this rate, often due to increased female participation in the workforce. The nature of employment is also changing. A full-time contract typically involves working around 35-40 hours per week, whereas a part-time contract involves fewer hours. Temporary contracts are for a fixed period of time. There has been a significant shift in employment from the primary (agriculture) and secondary (manufacturing) sectors to the tertiary (services) sector in developed and many developing economies.

Unemployment refers to a situation where people who are able and willing to work at the going wage rate cannot find a job. It is a crucial indicator of an economy's health. The unemployment rate expresses the number of unemployed people as a percentage of the total labour force. There are two main ways to measure this. The Claimant Count measures the number of people claiming unemployment-related benefits. It is cheap to collect but can be inaccurate as not everyone who is unemployed is eligible for or claims benefits. The Labour Force Survey (LFS) is a large-scale survey of households, based on the standard International Labour Organization (ILO) definition of unemployment. It is more accurate and internationally comparable, but it is expensive and subject to sampling errors.

Unemployment is not all the same; it has different causes, and understanding these is key to finding the right solution. There are four main types:

1. Frictional Unemployment: This is short-term unemployment experienced by people who are between jobs. It is a natural part of a dynamic economy as people voluntarily leave jobs for better opportunities or enter the workforce for the first time.
2. Structural Unemployment: This is long-term unemployment caused by a fundamental shift in the economy. It occurs when there is a mismatch between the skills workers have and the skills employers need, often due to technological advances (e.g., automation) or the decline of a major industry (e.g., coal mining).
3. Cyclical (or Demand-Deficient) Unemployment: This is caused by a lack of aggregate demand in the economy, typically during a recession. When people spend less, firms cut back production and lay off workers. This affects many industries at once.
4. Seasonal Unemployment: This occurs at certain times of the year because demand for labour in some industries is not the same all year round. Examples include tourism, farming, and construction.

High unemployment has serious negative consequences for individuals, firms, and the government. For individuals, it means a loss of income, leading to lower living standards and potential poverty. It can also lead to a loss of skills (de-skilling), stress, and related health problems. For firms, widespread unemployment can mean a fall in demand for their products as consumers have less disposable income. While a large pool of available labour might put downward pressure on wages, the negative impact of reduced sales is usually more significant. For the government and the wider economy, unemployment represents a major cost. The economy's output is below its potential, meaning lost GDP. The government also faces a double blow to its finances: tax revenues fall (less income tax and VAT), while government spending rises (increased payments for unemployment benefits and other welfare support). High unemployment can also contribute to social problems and inequality.

Sometimes, unemployment persists even when there are job vacancies. This points to a failure in the labour market to match willing workers with available jobs. A key cause of this is labour immobility. This occurs in two main forms:

1. Occupational Immobility: This happens when workers lack the necessary skills to move from one type of job to another. For example, a coal miner made redundant may not have the IT skills required for a job in a modern call centre. This is a primary cause of structural unemployment, as industries decline and new ones emerge with different skill requirements.
2. Geographical Immobility: This happens when workers are unable or unwilling to move to a different area to take a job. Barriers include high house prices in areas with jobs, family and social ties, and the costs associated with moving. This means unemployment can remain high in one region even while another region experiences labour shortages.

These immobilities act as barriers, preventing the labour market from clearing efficiently and leading to persistent structural unemployment.