Economics
Chapter 15: Macroeconomic Issues and Analysis: An Overview
15.1 The key issues: a recap
In a period of expansion economic growth is likely to be high, with unemployment falling; inflation is likely
to rise, however, as will imports.
In a recession, the reverse will be the case: economic growth will be negative and unemployment will
probably rise; inflation, however, is likely to fall, as will imports.
By better understanding the key macroeconomic issues, their causes and the relationships between them,
policy makers are in a position to make more informed policy decisions.
15.2 Unemployment
Unemployment fluctuates with the business cycle. Most countries have experienced long-term changes in
average unemployment rates.
THE MEANING OF ‘ U N E M P LOY M E N T ’
Unemployment can be expressed either as a number or as a percentage.
Number unemployed = Those of working age who are without work, but who are available for work at
current wage rates.
If the figure is to be expressed as a percentage, then it is a percentage of the total labour force.
Labour force = The number employed plus the number unemployed.
Unemployment rate = The number unemployed expressed as a percentage of the labour force.
OFFICIAL M E A S U R E S O F UN E M P LOY M E N T
Claimant unemployment
Two common measures of unemployment are used in official statistics. The first is claimant
unemployment = Those in receipt of unemployment-related benefits.
Claimant statistics have the advantage of being very easy to collect. However, they exclude all those of
working age who are available for work at current wages rates, but who are not eligible for benefits.
Standardised unemployment rates
Standardised unemployment rate = The measure of the unemployment rate used by the ILO
(International Labour Organization) and the OECD (Organization for Economic Co-operation and
Development). The unemployed are defined as persons of working age who are without work, are
available to start work within two weeks and either have actively looked for work in the last four weeks or
are waiting to take up an appointment.
Figures are compiled from the results of national labour force surveys. A representative cross-section of
the population is asked whether they are employed, unemployed or economically inactive.
THE D U R AT I O N O F UN E M P LOY M E N T
A few of the unemployed may never have had a job and maybe never will. For most unemployment lasts
only a certain period. For some it may be just a few days while they are between jobs. For others it may
be a few months. For others it could be several years.
There are three important factors that determines the average duration of unemployment:
1. The number of unemployed (the size of the stock of unemployment)
Unemployment is a ‘stock’ concept. It measures a quantity at a particular point in time.
2. The rate of inflow and outflow from the stock of unemployment
, The people making up the unemployment total are constantly changing.
If the inflow of people into unemployment exceeds the outflow, the level of unemployment will
rise.
The duration of unemployment will depend on the rate of inflow and outflow.
3. The phase of the business cycle
The duration of unemployment also depends on the phase of the business cycle. At the onset of
a recession, unemployment will rise, but as yet the average length of unemployment is likely to
have been relatively short. Once a recession has lasted for a period of time people will on average
have been out of work longer, and this long-term unemployment is likely to persist even when
the economy is pulling out of recession.
THE C O M P O S I T I O N O F U N E M P LOY M E N T
Unemployment rates vary enormously between countries and between different groups within countries.
- Geographical differences. Countries have very different labour markets, very different policies on
unemployment, training schemes, redundancy, etc., and very different attitudes of firms towards
their workers. Also, countries may not be at precisely the same phase of their respective business
cycles. Unemployment also varies substantially within a country from one area to another.
- Differences in unemployment rates between women and men. In many countries, female
unemployment has traditionally been higher than male unemployment. Causes have included
differences in education and training, discrimination by employers, more casual or seasonally
related employment among women and other social factors. In many countries the position has
changed in recent years.
- Differences in unemployment rates between different age groups. Higher youth unemployment
rates can be explained by the suitability (or unsuitability) of the qualifications of school leavers,
the attitudes of employers to young people, and the greater willingness of young people to spend
time unemployed looking for a better job or waiting to start a further or higher education course.
- Differences in unemployment rates between different ethnic groups. In many countries,
members of ethnic minorities suffer from higher unemployment rates than the average.
U N E M P LOY M E N T AND THE LABOUR MARKET
Two cause of unemployment into two broad categories: equilibrium unemployment and disequilibrium
unemployment.
Aggregate demand for labour curve = A curve showing the total demand for labour in the economy at
different average real wage rates.
Chapter 15: Macroeconomic Issues and Analysis: An Overview
15.1 The key issues: a recap
In a period of expansion economic growth is likely to be high, with unemployment falling; inflation is likely
to rise, however, as will imports.
In a recession, the reverse will be the case: economic growth will be negative and unemployment will
probably rise; inflation, however, is likely to fall, as will imports.
By better understanding the key macroeconomic issues, their causes and the relationships between them,
policy makers are in a position to make more informed policy decisions.
15.2 Unemployment
Unemployment fluctuates with the business cycle. Most countries have experienced long-term changes in
average unemployment rates.
THE MEANING OF ‘ U N E M P LOY M E N T ’
Unemployment can be expressed either as a number or as a percentage.
Number unemployed = Those of working age who are without work, but who are available for work at
current wage rates.
If the figure is to be expressed as a percentage, then it is a percentage of the total labour force.
Labour force = The number employed plus the number unemployed.
Unemployment rate = The number unemployed expressed as a percentage of the labour force.
OFFICIAL M E A S U R E S O F UN E M P LOY M E N T
Claimant unemployment
Two common measures of unemployment are used in official statistics. The first is claimant
unemployment = Those in receipt of unemployment-related benefits.
Claimant statistics have the advantage of being very easy to collect. However, they exclude all those of
working age who are available for work at current wages rates, but who are not eligible for benefits.
Standardised unemployment rates
Standardised unemployment rate = The measure of the unemployment rate used by the ILO
(International Labour Organization) and the OECD (Organization for Economic Co-operation and
Development). The unemployed are defined as persons of working age who are without work, are
available to start work within two weeks and either have actively looked for work in the last four weeks or
are waiting to take up an appointment.
Figures are compiled from the results of national labour force surveys. A representative cross-section of
the population is asked whether they are employed, unemployed or economically inactive.
THE D U R AT I O N O F UN E M P LOY M E N T
A few of the unemployed may never have had a job and maybe never will. For most unemployment lasts
only a certain period. For some it may be just a few days while they are between jobs. For others it may
be a few months. For others it could be several years.
There are three important factors that determines the average duration of unemployment:
1. The number of unemployed (the size of the stock of unemployment)
Unemployment is a ‘stock’ concept. It measures a quantity at a particular point in time.
2. The rate of inflow and outflow from the stock of unemployment
, The people making up the unemployment total are constantly changing.
If the inflow of people into unemployment exceeds the outflow, the level of unemployment will
rise.
The duration of unemployment will depend on the rate of inflow and outflow.
3. The phase of the business cycle
The duration of unemployment also depends on the phase of the business cycle. At the onset of
a recession, unemployment will rise, but as yet the average length of unemployment is likely to
have been relatively short. Once a recession has lasted for a period of time people will on average
have been out of work longer, and this long-term unemployment is likely to persist even when
the economy is pulling out of recession.
THE C O M P O S I T I O N O F U N E M P LOY M E N T
Unemployment rates vary enormously between countries and between different groups within countries.
- Geographical differences. Countries have very different labour markets, very different policies on
unemployment, training schemes, redundancy, etc., and very different attitudes of firms towards
their workers. Also, countries may not be at precisely the same phase of their respective business
cycles. Unemployment also varies substantially within a country from one area to another.
- Differences in unemployment rates between women and men. In many countries, female
unemployment has traditionally been higher than male unemployment. Causes have included
differences in education and training, discrimination by employers, more casual or seasonally
related employment among women and other social factors. In many countries the position has
changed in recent years.
- Differences in unemployment rates between different age groups. Higher youth unemployment
rates can be explained by the suitability (or unsuitability) of the qualifications of school leavers,
the attitudes of employers to young people, and the greater willingness of young people to spend
time unemployed looking for a better job or waiting to start a further or higher education course.
- Differences in unemployment rates between different ethnic groups. In many countries,
members of ethnic minorities suffer from higher unemployment rates than the average.
U N E M P LOY M E N T AND THE LABOUR MARKET
Two cause of unemployment into two broad categories: equilibrium unemployment and disequilibrium
unemployment.
Aggregate demand for labour curve = A curve showing the total demand for labour in the economy at
different average real wage rates.
