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Identify the causes of unemployment and suggest suitable remedies

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Introduction

Unemployment 1. There are two main methods of measuring unemployment in the UK: a) the claimant count b) the labour force survey a) This method was used for the whole of the 1980s and most of the 1990s. It simply involves taking a count of the number of people unemployed and claiming benefit. These are: the Jobseeker's Allowance (JSA) and National Insurance credits, claimed at Employment Service local offices. People claiming JSA (formerly Unemployment Benefit) must declare that they are out of work, capable of, available for and actively seeking work during the week in which the claim is made. They enter into a Jobseeker's agreement agreeing to take action to find work and to improve their prospects of finding employment. However, this method has many imperfections and so the incoming Labour government in 1997 changed to the second method of calculating unemployment. This measure has been seen as inaccurate because it omits many people who are unemployed but are not actually claiming benefit. There have been thirty changes to the way in which this measure is counted over the last twenty years. For example: in the late 80s, it was decided that those aged between 16-17years old should not count, because they could either stay in education or engage in government training. Also, more recently, it was decided that one could only claim Jobseekers Allowance for six months, rather than twelve. Many unemployed women do not collect Jobseekers Allowance; because they then cannot claim other important benefits. Figures are seasonably adjusted to allow for changes in unemployment that can occur naturally over the year. There tends to be seasonal employment in the summer at tourist resorts and at Christmas. Unemployment is commonly supplied as a percentage, because this takes into account changes in demographics. As one can imagine, an arbitrary figure of 2 million unemployed in a country means very little - the population could be 50M, which means that unemployment is low, or the population could be 20M, where it is very high. ...read more.

Middle

A major factor will be the point to which new technology increases the productivity of capital involved relative to the improved labour productivity. If all the reduction in costs is down to a new 'super machine', then the amount of labour required will probably fall. One final cause of unemployment is permutations of the workforce. It is constituted by people who are of working age and not currently in full-time education. Their number will change as demographic (age) structures (of the population) change. For example, a baby-boom (a rapid increase in the birth rate) will mean that these people will only join the workforce between 16 and 21 years later. If there are the same number of people retiring from the work-force, then unemployment will stay constant. However, following a baby boom there are often more joining the work-force than leaving. This would increase unemployment, unless there are sufficient jobs created to employ the extra people in the work-force. This was one of the causes of unemployment in the early 1980s when people born in the baby-boom of the 1960s joined the work-force. Links with aggregate demand and supply analysis: The first diagram shows the 'long run' Aggregate Supply/Aggregate Demand diagram. It is assumed that the economy is at equilibrium (full employment), YFE, providing a price level of P1 (pt. A). In the full employment level of income, any increase in aggregate demand will lead only to a rise in the price level in the long run. The economy will move to point B temporarily, but the subsequent rise in real wage claims that follow a rise in the price level will shift the short run aggregate supply curve to the left (from SRAS1 to SRAS2) and the economy will end up at point C, back at YFE but with a much higher price level (P2). The second diagram: it is assumed that the economy is operating at point A, with unemployment equivalent to NAIRU, U*, and 0% inflation. ...read more.

Conclusion

and thus creating jobs. This leads to the same consequences as (a): more jobs are created, but less money is saved despite higher confidence, which is linked to mortgages. As mentioned before, in order to achieve full employment, the government would have to implement a perfect market. Perfect competition, however, is very difficult to forge and therefore, so is full employment. Another factor related to this is the thriving technological boom that we are currently living in and will continue to do so. Throughout the all-encompassing industry of technology, the aim is to make jobs easier and/or automated. Automation inevitably leads to a machine doing the equivalent work of several employees with more precision and lower costs. The main point here is this: more and more technology is being developed in every industry, and eventually (and progressively), it may replace human labour, thus causing more unemployment. However, as mentioned before, this forced unemployment can be offset if they are employed in another sector, possibly in the maintenance of the new technology(ies) that made them obsolete in the first place. The disadvantage here is that not many technicians are needed, and, if a company 'lays off' 10,000 workers and replaces them with 25 machines, only, say, 3 technicians per machine may be needed and so 9925 workers will still be unemployed. There is a natural rate of unemployment around which the unemployment rate hovers. The government can change the rate to below or above this level, but it will return to the natural rate of unemployment. Therefore, 0% unemployment, even if possible, would be temporary. A ramification of this is that the long run Phillips curve is vertical. Success would lie in reducing this natural state of unemployment, and this can only be done by increasing the growth rate of the economy, which is a difficult task.. In conclusion, I do not believe that the government can achieve full employment, but the matter is highly subjective, as all the different classes of economists have proven. ?? ?? ?? ?? ANKIT MATHUR ECONOMICS HOMEWORK 25-02-02 1 ...read more.

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