Topics: Unemployment, Inflation, Macroeconomics Pages: 8 (2338 words) Published: January 31, 2013
According to Gillespie (2011)1, “unemployment is a measure of the number of jobless people who want to work, are available to work, and are actively seeking employment.” However, unemployment does not include underemployed workers and part time workers. Since 2008, the global unemployment rate has grown. However, in normal situations or even boom times, the unemployment rate never equals to zero. Hence, the main purpose of this essay will demonstrate the situation of unemployment. It will first describe how to measure unemployment. Then, the causes and effects of unemployment will be outlined. Finally, it will examine government policies and evaluate their effectiveness.

Gillespie (2011)1 points out that the ways, the claimant count and the labour force survey (LFS), could measure unemployment in the UK. The former is individuals who are actually claiming unemployment-related benefits at any moment; the latter is based on interviews with people to determine those who are not employed, but who want to work. Nowadays, the LFS is the official way, which measures unemployment in the UK.

In different situations, there are different causes, and then the causes will be analysed. For a country, the most common determinant of living standard is natural rate of unemployment which is normal experiences, and the average rate of unemployment in the UK from 1900 to 2010 was 5.4 per cent. (Economic Review, 2010)2 There are a number of causes, such as frictional unemployment, structural unemployment, seasonal unemployment and technological unemployment that always result in natural rate of unemployment. Frictional unemployment and structural unemployment play important roles in normal situations. Frictional unemployment has always existed in a short term because employees need time to find suitable jobs. In addition, structural unemployment occurs when the structure of markets alter that could explain why some employees often involves in long-term unemployment. There are some situations, such as the minimum wage, trade union and efficiency wages that could increase the wages of workers. There is structural unemployment when the equilibrium level is exceeded.

However, “the economy often goes through cycles of booms, recessions, slumps, and recoveries” that is claimed by Gillespie (2002)3. Therefore, the cycle of the economy may produce cyclical unemployment, which is a cause in unstable situations. In the 1930s, the Financial Crisis resulted in high unemployment, with around 22 per cent in the UK which was the highest point in the last 110 years. Moreover, due to the OPEC oil price going up, the unemployment rate rose between 1970 and 1990. Additionally, for the banking crisis, this rate attained to 12 per cent in the early 1990s. Recently, high unemployment has been caused by the recession again. In February 2012, the rate of unemployment reached 8.4% that was the highest percentage for 16 years. (BBC, 2012)4 It can be seen that the high rates of unemployment are normally caused by recessions. By contrast, when the economy is stable, it always creates low unemployment. In addition, war usually promotes demand of governments and people. Thus, in the Second World War, the unemployment rate was the lowest level in the UK, with approximately 1 per cent.

The effects of these causes will be considered. There are increasing health risks for unemployed people, especially long term unemployed, such as stress, reduction in quality of diet, increased risk of divorce, social exclusion, premature death and chronic illnesses. (tutor2u, 2012)5 While, Mankiw (2011)6 states a positive effect of unemployment that “job search is the process of matching workers with appropriate jobs.”

In addition, unemployment, especially high unemployment, is likely to affect businesses. High unemployment means that businesses do not employ many workers, and hence the sales of products could decrease. In addition, falling quantities of productions may lead...
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