Unit 4.5 UNEMPLOYMENT 4.5.1 Meaning of unemployment Unemployment refers to a situation where people who are willing and able to work cannot find a job at the prevailing market wage rate and they are actively searching for one over the last 4 weeks. 4.5.2 Measurement of unemployment To measure unemployment, economists make reference to 3 key terms* in their formulae which are worth explaining. (a) Labour Force : Total no. of people who are available to work legally and who can contribute to the production of the country’s goods and services ( GDP ). It normally comprises of males and females in the age of 16 to 65 .The labour force will comprise of both the employed and the unemployed. [ Labour Force = No. of people employed + No. of people unemployed ] Examples of people who will form part of a country’s labour force are ( part time librarian,full time educator, university graduate searching for his first job ) Examples of people who will NOT form part of a country’s labour force are ( stay at home mother, a previously employed individual who has now decided to go back to an educational institution for further studies, someone who has lost hope of getting a job and has now stopped searching for one ) The labour force is influenced by factors like : (I) Size of the population in the working age group (II) No of people who are in full time education (III) The retirement age (IV) Women participation (b) Participation rate : It simply expresses the labour force as a % of people in the working age [Participation rate = Labour Force x100 ] No of people of working age The higher the participation rate the higher is the potential for higher economic growth. ( c ) Unemployment rate : It simply expresses the no. of people unemployed as a % of the total labour force [Unemployment rate = No of people unemployed Total Labour Force
x 100]
NUMERICAL CALCULATION The following data is available for a country’s labour market Millions Adult Population ……………………………………………100 Number in employment ……………………………………60 Number unemployed ……………………………………….4 Calculate the unemployment rate and the participation rate ?
WORKINGS :
WAYS OF MEASURING UNEMPLOYMENT There are 2 main methods which economists make use of to estimate the level of unemployment in a country namely, the Claimant Count Method and the Labour Force survey CLAIMANT COUNT METHOD The Claimant count Method is the traditional measure and it is relatively cheap and quick to calculate as it counts as unemployed those who register as unemployed and claiming unemployment benefits ( job seekers allowance ) Advantages 1. It is a relatively inexpensive method to estimate unemployment
2. Unemployment statistics can be quickly retrieved from the government dept. Disadvantages 1. It is not internationally recognised 2. Limited analysis for identifying the unemployed people ( based only on receipt of unemployment benefits ) 3. Accuracy is often questioned as many people may claim unemployment benefits whilst they are working in the black, underground,hidden or shadow economy.( i.e they claim unemployment benefits fraudulently ) LABOUR FORCE SURVEY The Labour Force Survey is more widely used and it uses the International Labour Organisation ( ILO )definition of unemployment which counts as unemployed all those who are actively seeking jobs, whether or not they are claiming unemployment benefits and that they are available to start work in the next two weeks. Advantages 1. It is internationally recognised 2. It is suitable for making international comparisons 3. It includes other groups which the Claimant Count ignored Disadvantages 1. It is a more expensive method and it requires significant mobilisation of resources 2. It may be subject to sampling errors when data are collected and affects its accuracy.