This is an
adjustment made to economic data that allows for changes due solely to the
period of time at which the data was collected, instead of examining the
underlying forces in which we may in fact be interested.
For example, at
Christmas, the unemployment figures may be artificially reduced due to the
number of people taking temporary employment in the retail sector. The
seasonally adjusted unemployment figures will exclude this rise in temporary
employment from their calculations.
Costs Of Unemployment
Lost Output Of Goods And Services
causes a waste of scarce economic
resources and reduces the long run growth
potential of the economy. The
hours that the unemployed do not work can never be recovered.
Costs To The Government
unemployment has an impact on government expenditure, taxation and the level
for government borrowing each year
An increase in
unemployment results in higher benefit payments and lower tax revenues. When
individuals are unemployed, not only do they receive benefits but also pay no
As they are spending
less they contribute less to the government in indirect taxes, e.g., VAT.
This rise in
government spending along with the fall in tax revenues may result in a
higher government borrowing.
Deadweight Loss Of Investment In Human Capital
Workers who are
unemployed for long periods become de-skilled
as their skills become increasingly dated in a rapidly changing job market.
This reduces their chances of gaining employment in the future, which in turn
increases the economic burden on government and society.
Social Costs Of Unemployment
unemployment is linked to social and
economic deprivation - there is some relationship between rising
unemployment and rising crime and worsening social dislocation (increased
divorce, worsening health and lower life expectancy).
Areas of high
unemployment will also see a decline in real
income and spending together
with a rising scale of income
inequality. As younger workers are more geographically mobile than older
employees, there is a risk that areas with above average unemployment will
suffer from an ageing potential workforce - making them less attractive as
investment locations for new businesses.
The Main Causes Of Unemployment
Cyclical Unemployment is associated with an economic recession or a sharp
economic slowdown. It occurs due to a fall in the level of national output in
the economy causing firms to lay-off workers to reduce costs and protect
profits. This is a process known
Although cyclical unemployment is usually associated
with economic recessions it can also exist when the economy is constantly run
below capacity. As the economy recovers from a downturn, we expect to see the
problem of cyclical unemployment decline.
This type of
unemployment reflects job turnover in the labour market. Even when there are
plenty of vacancies available, it takes time to search and find new
employment and workers will remain frictionally unemployed.
unemployment exists even when there are unfilled job vacancies due to a
mismatch between the skills of the registered unemployed and those required
by employers. People made redundant in one sector of the economy cannot
immediately take up jobs in other parts as they do not have the relevant
For example, it
would be hard for a redundant ship yard worker to instantly take a job in a
high-tech electronics business. Likewise workers laid-off in steel
manufacturing may have problems in finding re-employment in financial
services. This type of unemployment is linked to occupational immobility of
unemployment often occurs more heavily in certain regions because of the
long-run decline of traditional industries. For example the loss of
manufacturing jobs in the north-east of England, the closure of coal mines in
Scotland and Wales and the long-run decline of ship-building in the United
Real Wage Unemployment
Real wage unemployment occurs when wages are forced above the normal
market level. Traditionally,
trade unions and wages councils are seen as the institutions causing this
type of unemployment although the importance of trade unions in the UK labour
market has diminished significantly over recent years. It has been argued by some that the minimum wage has caused
some real wage unemployment.
New Deal - New Hope?
Deal programme for young unemployed people was introduced across the UK in
April 1998. In June 1998 the Government launched a separate New Deal for
Long-Term Unemployed People aged over 25+.
later we are starting to see some of the effects of these active labour
market policies on the UK economy.
New Deal by moving into a Gateway where they are given an interview and
support in choosing a suitable option.
a subsidised job with
remaining in full-time
education and training
work within the
accredited voluntary sector and
work experience with
an environmental task force.
option of staying on benefits has been taken away!
is designed to provide pathways back into work for the long term unemployed
– many of whom have become outsiders in the labour market despite the
continuing strength of the British economy. Higher levels of employment and
economic activity add to total national output and should help to improve the
overall performance of the labour market in sustaining long run economic
Is New Deal Delivering?
The latest data
on New Deal participants published shows that up to the end of July 2000,
over 518,000 people have now passed through the New Deal scheme, 402,000 have
left leaving 116,000 currently on the programme. 237,040 young people had
entered employment. Of which 180,600 were in sustained jobs, and 56,440 in
jobs lasting less than 13 weeks.
There are wide
differences in the success rate in getting New Deal participants into work
across the regions. Just over one third of participants among 18-24 year olds
have moved into employment but in some cities (including Birmingham) the
percentage is only 25%.
The New Deal
programme for workers aged 25+ has been running for a shorter time period.
Nonetheless less than 15% of participants have moved into employment. In some
areas (Glasgow for example) only one person in ten has passed through the
programme into either a subsidised job or non-subsidised employment.