Employment and unemployment

The foundation of understanding employment is the 'labour force'. This isn't the entire population, but rather the segment that is of working age and is economically active. The working-age population typically includes everyone between the school leaving age and the state retirement age. Within this group, people are either in the labour force or are 'economically inactive'. The labour force consists of those who are employed and those who are unemployed but actively seeking work. The economically inactive include people like students in higher education, stay-at-home parents, early retirees, and those unable to work due to long-term illness. The Labour Force Participation Rate (LFPR) is a key indicator that measures the proportion of the working-age population that is part of the labour force. A higher LFPR suggests more people are willing and able to work. Trends in the LFPR can reveal a lot about an economy, such as rising female participation in the workforce, or an ageing population leading to more retirees.

Employment patterns describe how people work. This can be analysed by employment status and by industrial sector.

Employment Status refers to the type of contract an employee has. A 'full-time' contract typically involves working a standard week as defined by the employer, often around 35-40 hours. 'Part-time' contracts involve working fewer hours than a full-time position. The rise of the service economy and the desire for more flexible working arrangements have led to a growth in part-time jobs. 'Temporary' contracts are for a fixed period of time, after which the employment ends. These are common in seasonal industries like tourism or for specific projects.

Employment by Industrial Sector shows where people work. Economies are divided into three sectors:

1. Primary Sector: Extracting raw materials (e.g., farming, mining, fishing).
2. Secondary Sector: Manufacturing and construction (e.g., car factories, house building).
3. Tertiary Sector: Providing services (e.g., retail, banking, healthcare, education).

As economies develop, they typically experience a shift in employment from the primary and secondary sectors towards the tertiary sector. This is due to mechanisation in agriculture and manufacturing, and rising incomes which increase demand for services.

Unemployment occurs when a person who is actively searching for employment is unable to find work. The International Labour Organization (ILO) defines an individual as unemployed if they are without a job, have been actively seeking work in the past four weeks, and are available to start work within the next two weeks. Simply not having a job is not enough to be counted as unemployed. The most common measure is the 'unemployment rate', which expresses the number of unemployed people as a percentage of the total labour force. It is a crucial indicator of an economy's health. A high unemployment rate suggests the economy is not creating enough jobs for those who want to work. There are two main ways to collect unemployment data: the Claimant Count, which simply counts the number of people claiming unemployment-related benefits, and the Labour Force Survey (LFS), which is a large survey of households. The LFS is internationally recognised as a more accurate measure as it includes people looking for work but not eligible for benefits.

Unemployment is not all the same. Economists identify four main types, each with different causes and requiring different solutions.

1. Frictional Unemployment: This is short-term unemployment that occurs when people are in the process of moving between jobs. It includes school leavers looking for their first job and people who have quit to find a better one. It is generally seen as unavoidable and even a sign of a healthy, dynamic economy where workers are mobile.

1. Seasonal Unemployment: This occurs because the demand for labour in certain industries is not the same all year round. For example, tourism, farming, and construction often have peak seasons and off-seasons. Workers like ski instructors or fruit pickers may be unemployed during their industry's off-season.

1. Structural Unemployment: This is a more serious, long-term form of unemployment. It arises from a mismatch between the skills workers have and the skills employers need. It is often caused by major changes in the economy, such as technological advances that make certain jobs obsolete (e.g., typists replaced by computers) or the decline of a major industry in a specific region (e.g., coal mining). Workers affected may suffer from occupational and geographical immobility, meaning they cannot easily switch careers or move to where the jobs are.

1. Cyclical (or Demand-Deficient) Unemployment: This type is linked to the economic cycle. During a recession or economic downturn, overall demand for goods and services in the economy falls. Firms respond by cutting back production and laying off workers to reduce costs. This is the type of unemployment that rises sharply during a recession and falls during a period of economic growth.

High unemployment has significant negative consequences for an economy and society. The causes are directly linked to the types of unemployment. Cyclical unemployment is caused by recessions, while structural unemployment is caused by technological change, globalisation, and shifts in consumer demand. Labour market failures are also a key cause, particularly for structural unemployment. These include:

• Occupational immobility: Workers lack the right skills to move into available jobs.
• Geographical immobility: Workers are unable or unwilling to move to different parts of the country where jobs exist, often due to family ties or the high cost of housing.

The consequences of unemployment are far-reaching:

• For Individuals: The most direct impact is a loss of income, leading to a lower standard of living. It can also lead to a loss of skills (de-skilling) if someone is unemployed for a long time, making it harder to find work in the future. There are also significant social costs, including stress, health problems, and social exclusion.
• For Firms: A high unemployment rate means a larger pool of available labour, which can make it easier to recruit workers and may keep wage pressures low. However, the overall consequence is negative, as higher unemployment means lower national income and therefore lower demand for the firm's products.
• For the Government and Economy: The economy's total output (GDP) will be lower than its potential, as a key resource (labour) is being underutilised. The government faces a double financial hit: tax revenues fall (less income tax and VAT), while government spending rises (more spending on unemployment benefits and other welfare support). This can lead to a budget deficit.