Unemployment in the UK - Essay Example

Running Head: Unemployment in the UK Introduction Since the 2007-2009 financial crisis, there has been a continuous increase in the rate of unemployment in the various economies. Since employment is the major source of income for most people losing their jobs will definitely be a devastating aspect. Unemployment means that individuals will lose their purchasing power which in the long run will lower the economy of that particular country. It can also be stipulated that any particular impact on the economy will either positively or negatively trigger unemployment. To a large extent, unemployment relies on the economic performance in the country (Smith, 2003). Definition and measurement of unemployment There are numerous approaches to define unemployment; these approaches have been made since unemployment may not be an easy aspect in the globe. There have arisen numerous challenges which have pushed the international agencies to formulate different aspects of unemployment (Mortensen, Pissarides, Tatsiramos & Zimmermann, 2011). Claimant Count This approach is based on the data collected from persons who claim they are not employed. In the UK, such category of individuals is liable to get some help from the government, the help can be termed as the Jobseeker’s Allowance (JSA). The specifications such people need to accomplish include; out of work for less than 16 hours a week, be available for work, currently seeking employment, capability to handle work, be of age and a resident in the UK. This can be summarized by the following equation to depict the percentage unemployment rate: ILO Unemployment - The Labour Force Survey ILO measures that group of people who are not working, actively seeking jobs and capable of undertaking any job that may arise. This approach measures the proportion of the population that is unemployed, this encompasses: those who are economically active in the country. The rate, which is arrived at is state based since it encompasses residents of the particular country (Clasen, Goul, Halvorsen & Oorschot, 2002). Census As A Measure Of Unemployment Census in the UK is carried out after every 10 years; it aims at providing a count of all people and the households apart from the demographic data which is collected. The census also avails a big range of labour related data. This data is very important in measurement of unemployment. According to the census reports, unemployment can be described as the number of persons who do not have jobs and are actively looking for jobs. This is the same principle outlined in the International labour organization (ILO) (Howell, 2005). Theories of Unemployment and Public Policies Unemployment revolves around the economic factors in the country. Every small sector in the economy plays a critical role in ensuring a decrease or an increase in the unemployment rate. Some of the theories which describe unemployment in the UK economy are described below. However, some critics are embedded on the unemployed individuals and the general external shocks or resources in a country (Mankiw, 2011). Unemployment in the Classical Economic Theory According to this theory, the labour market is influenced by demand and supply of labour in the market. The demand for labour is essentially derived from the declining portions of the marginal product of labour. The demand curve, which emanates from this approach is a negative function of the real wage; if wages increase the demand for labour will drop and vice versa. The supply of labour is arrived at from the choice of workers to work or not to work. The available hours of work are a positive function of the real wage, since an increase in the real wages triggers an increase in the supply of labour hours. Equilibrium is achieved at the intersection of the demand and supply of labour; this is the determining point of real wage rate in the market and the full employment. Frictional unemployment, which is caused by the going wage rate will be present. This theory is in line with the Hayek theory of unemployment, which provides for a case where firms search for more productive workers and on the other hand workers search for the highest paying jobs and companies. When a match is met, then employment is created, however, with time if the worker realizes that the wages are much lower than production they will opt to get out or ask for an increment; at this juncture there may be unemployment and the whole cycle continues. Unemployment in the Theory of Innovations This theory was first created by a German researcher Von Mangoldt in 1855. According to the study he conducted on a number of entrepreneurs in the economy, he came up with the findings that innovations aided reduction of unemployment levels consequently increasing the levels of employment in the market. With each innovation, which is undertaken in the market by different companies and organization, there is a resultant vacant position created to be filled. Other researchers like Schumpeter, who carried on the work of Von Mangoldt depict that economic development offers a platform for continuous improvement and innovations. Economic development can be termed as an extension of the socioeconomic spectrum in the economy. Every significant expansion of the economy is not wholly influenced by the economic forces alone, but with an inclusion of the external forces. Without development in the economy, there is no profit, hence no wages which means the level of unemployment will be very high (Mortensen et.al, 2011). Schumpeter depicts that innovation involves: the introduction of new products, use of new production techniques, opening of new markets and development of a product line in an organization. These aspects create a void which will need to be filled by an individual to undertake the tasks that may consummate from them. Business innovation is a very important aspect of employment and unemployment levels in the UK (Hoffmeyer-Zlotnik et.al, 2003). Unemployment in the Theory of Effective Demand Aggregate demand influences the level of total revenues. A decline in the total costs of production means that revenues will increase significantly hence profit. It is the profit which emanates from this business that will instigate new ventures. Keynes partakes that unemployment is involuntary and cyclical unemployment is basically generated by the shortcomings of aggregate demand. Employers will hire workers with the expectation of a positive increase in their production (Crafts & Fearon, 2013). Unemployment in the Real Business Cycle Theory This approach holds that businesses would tend to hire people at their booming stages as compared to the low level production stages as depicted in the business cycle. Thus, at low seasons there is a higher rate of unemployment as compared to the peak seasons. Unemployment in the UK In the year 2005, the UK economic conditions were very good; there was an immense economic growth during this period which greatly influenced the rate of unemployment in the country. More and more people were employed both in the informal and formal sectors. According to the BBC news, the number of jobless people in the country dropped by approximately 15,000 to 1.4 million, this was a big step since economic growth led to new job development. It boosted the living standards of the citizens with a huge magnitude. In the year 2006, things became rather bumpy for the UK citizens because of the falling economic growth, approximately 77,000 people lost their jobs and a huge number still remained jobless. However, the most suffering lot were the youths owing to their redundancy inexperience on different jobs. It can be estimated that the youth unemployment in the UK costs the economy 10pounds in a day (Great Britain, 2012). During the period 2007-2009, an economic crisis hit the US; since the UK was closely related with the US it was adversely affected. It is during this period that youth unemployment reached a record high of 2.5 million. It is during this time that the youths aged 16-24 experienced a higher unemployment rate. The period was termed as an unemployment crisis in the UK. This was above the average Euro rate of 15.9%; the 16.1% rate in the UK was disturbing to both the government and the citizens who felt that the country was not doing well on performance (Beer & Schils, 2009). The UK experiences some imbalances on the rate of unemployment in the country. For instance, South Yorkshire and South Wales were greatly affected by the decline in the coal mining, London which is the main driving force of the economy is not spared since it depicts unemployment rate of 7.6%, northeast region at 6.7%, Yorkshire and Scotland 5.3% and the rest of regions lie between 4.5%- 3.9%; this figure show the distributional differences. The latest hit on the UK economy came in early in 2009-2012; this period had a huge impact on the economies of the European countries. The UK being among them was negatively affected by the economic under falls. The UK recorded a huge unemployment at this time since many small businesses were driven off the market, leaving a huge gap in the employment sector. Also in part some of the policies adopted by the government led to the decline of performance on small holders in the market, this favoured the kingpins in the economy who unfortunately provide gauged employment (Marshalle, 2006). UK has adopted a means of ensuring that, monetary policies are framed in a manner to ensure that companies enjoy an ideal business platform. The government lowered the interest rates of its main lenders in a move to adopt a more coherent environment. With both the formal and informal sectors fully functional there will be the absorption of the huge jobless individuals into employment. However, the trend has been characterised by fluctuations, for instance, in the months of December, November and September 2013 it rose to 7.2% from its initial rate of 7.1% at this rate the UK policy makers ought to get worried and instil mechanisms that will be helpful for the country’s performance. References Beer, P. D., & Schils, T. 2009. The labour market triangle employment protection, Unemployment compensation and activation in Europe. Cheltenham, UK, Edward Elgar. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=487414. Crafts, N. F. R., & Fearon, P. 2013. The Great Depression of the 1930s: lessons for today. Oxford, Oxford University Press. Clasen, J., Goul Andersen, J., Halvorsen, K., & Oorschot, W. V. 2002. Europes new state of Welfare: unemployment, employment policies and citizenship. Bristol, Policy Press. Great Britain. 2012. Youth unemployment and the Youth Contract: second report of session 2012-13. Vol. 1, Vol. 1. London, Stationery Office. Hoffmeyer-Zlotnik, J. H. P., Hoffmeyer-Zlotnik, J. H. P., Wolf, C., & Wolf, C. 2003. Advances in cross-national comparison: a European working book for demographic and socio-economic variables. New York, NY, Kluwer Acad./Plenum Publ. Howell, D. R. 2005. Fighting unemployment the limits of free market orthodoxy. Oxford, Oxford University Press. Mankiw, N. G. 2011. Principles Of Economics. Mason, Ohio, Thomson South-Western. Marshalle, M. I. 2006. Economics of Unemployment. New York, Ny, Nova Science Publ. Mortensen, D., Pissarides, C. A., Tatsiramos, K., & Zimmermann, K. F. 2011. Job Matching, Wage Dispersion, And Unemployment. Oxford, Oxford University Press. Samuelson, P. A., & Nordhaus, W. D. 2010. Economics. New Delhi, Tata Mcgraw Hill. Smith, D. 2003. UK current economic policy. Oxford, Heinemann Educational Books – Secondary Division. Read More