UNEMPLOYMENT

Working Population

Structure of the Working Population

The UK population divides into two sections:

• The working population is made up of people who are of working age and available to work. It does not include people in full-time education. All those people actually employed or self-employed make up the labour force.

• Dependants make up the rest of the population.

Employment Trends

There has been a radical change in the structure of occupational employment. Before the industrial revolution over 80 per cent of the labour force were employed in agricultural production. Now the figure is less than 3 per cent. As recently as 1951, over half the labour force were employed in manufacturing. Since then there has been a period of rapid decline, particularly in the heavy-engineering sector. The complexity of modern society has increased the number of administrators. This trend has been accelerated by the spread of information technology.

Measurement of Unemployment

When calculating the level of unemployment the government only counts those people who register as unemployed and claim benefit. A large number of people seeking work either do not register or do not claim benefit and are now excluded from official figures. The benefit count that was used for the headline figure for unemployment was superceded in 1998 by a figure based on the Labour Force Survey.

The unemployment rate is the percentage of the labour force officially jobless. Full employment occurs when the number of notified job vacancies exceeds the number of registered unemployed.

Costs of Unemployment

Lost Output

The opportunity cost of each unemployed person is their foregone output. Since average annual output per worker is £12,000, unemployment of 3.3 million costs the UK £40 billion a year in lost goods.

Increased Benefit Payments

Each extra person who becomes unemployed stops paying tax ( perhaps £4000) and starts receiving benefit (upwards of £5000). The government therefore has to raise a minimum of £27 billion to finance unemployment benefits for 3 million unemployed. As the figure falls the government pays out less unemployment benefits and receives more in tax. The savings to the exchequer from this will be considerable.

Lost Tax Revenue

Growing unemployment means less direct and indirect tax revenue. When people lose their jobs they will stop paying income tax, and their spending will fall considerably reducing government receipts from VAT and other indirect taxes.

Human Costs of Unemployment

The long-term and youth unemployed feel increasingly isolated and removed (alienated) from society. There will also be increased NHS costs as people's health often suffers when they are unemployed, and there will be increased costs to society in terms of crime.

Types, Causes, and Remedies for Unemployment

Table 15.1 summarises the main causes and remedies for different types of unemployment.

The Thatcher and Major administrations (1979 - 1997) believed that the current high level of unemployment cannot be reduced by more government spending. The government argues that extra spending only increases inflation and UK imports. The government does offer a number of employment and training schemes summarised in table 15.2. The Labour government elected in 1997 has introduced the New Deal for the unemployed to try to get people back to work by giving them the skills and experience they require. This is targeted particularly at the young and long-term unemployed.

Unemployment Trends

Unemployment is a flow and not a stock. There are always inflows onto the unemployment register, and there are outflows off the register as people get jobs or join training schemes. If all inflows rise and all outflows except training fall then overall unemployment will rise. Young people, women, the over-fifties and ethnic minorities tend to be the hardest hit. Inner cities and manufacturing areas also tend to have above-average unemployment. The average length of time workers remain unemployed is a critical measure of the seriousness of the unemployment figures. If the average length of unemployment is short then the economy will be healthier and people will not lose their skills from long periods without work.

Unemployment rose sharply from 1979 - 1983 and reached a peak of over 3 million. From then on it fell very slowly, until the late 1980s when the impact of the Lawson Boom was to create large numbers of jobs. The impact of the subsequent recession (1989-1992) was to increase unemployment once more, but recovery in the 1990s has reduced the figure once again. Table 15.1 Causes and remedies of unemployment

Type	Description	Cause	Remedy
Frictional	Workers temporarily between jobs	Delays in applying interviewing and accepting jobs	Improve job information, eg computerised job centres
Structural	Workers have the wrong skills in the wrong place	Declining industries and the immobility of labour	Subsidies and improve the mobility of labour
Cyclical	All firms need fewer workers	Low total demand in the economy	Increased government spending or lower taxes
Technological	Firms replace workers with machines	Automation and information technology	Retraining
International	Overseas firms replace UK producers	High-priced/low-quality UK goods	Tariffs quotas or sterling depreciation
Regional	High unemployment in one area	Local concentration of declining industries	Regional aid, eg relocation grants
Seasonal	Unemployment for part of the year	Seasonal variation in demand	Retraining
Voluntary	Workers choose to remain unemployed	More money 'on the dole' than from working	Remove the low-paid from the liability to pay income tax

Table 15.2 Employment and training schemes that have been used in the 1980s and 1990s

Scheme	Description
Restart Programme	Interviews and training for the long-term unemployed
Community Programme	Local projects for the long-term unemployed
New Workers Scheme	A subsidy to employers taking on youth unemployed
Job Search Scheme	Return fare and allowances for job interviews
Job Release Scheme	Older workers retire early with an allowance and are replaced by an unemployed person
Job Splitting Scheme	A subsidy to employers who encourage job sharing
Youth Training Scheme	Two-year work experience and training for school leavers
Job Training Scheme	Retraining scheme for unemployed adults

---