Employment and Unemployment

Employment, Underemployment and Unemployment

Employment: people doing paid work, whether full-time, part-time or self-employed. In UK figures, one hour of paid work a week is enough to count.

Unemployment: people of working age who have no job but are available for work and actively looking for it.

Underemployment: people in work who want more hours than they can get, or whose job makes little use of their skills. A trained chef working ten hours a week in a shop, because that is all she can find, is underemployed.

People without a job who are not looking for one, such as full-time students, retired people and carers, are economically inactive, not unemployed. The unemployment rate is the unemployed as a percentage of everyone in work or looking for it.

Measures of Unemployment

The UK measures unemployment in two ways:

The two figures differ and can move differently. Someone whose partner earns too much for them to get benefits can be ILO unemployed without ever appearing as a claimant.

The Causes of Unemployment

Structural unemployment: unemployment caused by the long-term decline of an industry, which leaves workers whose skills or location no longer match the jobs available.

The decline may come from falling demand, new technology or production moving abroad to cheaper countries.

When a steelworks closes, new jobs may appear in health care or in another region, but the former steelworkers often cannot take them. Two kinds of factor immobility keep them out of work:

• Occupational immobility: workers lack the skills or qualifications for the jobs on offer, and retraining takes time and money.
• Geographical immobility: workers cannot move to where the jobs are, because housing there costs more or they have family ties where they live.

Technological unemployment: unemployment caused by machines or software doing work that people used to do, such as self-service checkouts replacing cashiers.

It is a form of structural unemployment. New technology also creates jobs, but usually different ones, needing different skills.

Demand-deficient unemployment: unemployment caused by too little aggregate demand. It rises in a recession, so it is also called cyclical unemployment (unit 2.5.1).

Households and firms spend less → firms sell less → they need fewer workers, because labour is a derived demand → they stop hiring and make redundancies → the newly unemployed spend less, and the cycle deepens.

There is also frictional unemployment: short gaps while people move between jobs. It is usually brief and is not one of the causes the spec lists.

The Impact of Unemployment on Firms and Individuals

When unemployment rises, firms face:

• Lower sales: people lose their jobs and others fear for theirs → household income and confidence fall → spending falls, especially on luxuries → lower sales and profit. Discount retailers can gain as shoppers trade down.
• Cheaper recruitment: more applicants for each vacancy → jobs are easier to fill and there is less pressure to raise pay → lower labour costs.

For individuals:

• Loss of income: a worker loses their job → they rely on savings, benefits or borrowing → a fall in real income and living standards.
• Lost skills: the longer someone is out of work → the more their skills and confidence fade → the harder it is to get hired → lower pay even after they find work. Firms that hire them face higher training costs.
• Health: money worries and losing a routine → stress and poorer mental health.

The size of the impact depends on:

• How long it lasts: a short spell between jobs does little lasting harm; long-term unemployment is what erodes skills and income.
• Where it is concentrated: structural unemployment hits one town or region, so local shops and suppliers suffer most, while firms elsewhere barely notice.