This document defines unemployment and discusses different types and measures of unemployment. It provides key trends in UK unemployment from 1990 to 2009, showing a long period of falling unemployment until 2008 when it increased sharply due to the recession. Different types of unemployment are outlined, including frictional, seasonal, structural, and cyclical unemployment. The relationship between GDP growth and employment is examined, as well as implications of unemployment for businesses, such as potential responses to low or high unemployment environments.

1. Unemployment

2. Defining unemployment
The number of people
able, available and willing
to find work and actively
seeking work – but not
employed

3. Two measures of unemployment
• Claimant Count Measure
– The number of people claiming the Jobseekers’
Allowance
– Monthly count of unemployed
• Labour Force Survey
– An internationally agreed measure of unemployment
– Must have actively sought work in the previous four
weeks and be available to start work immediately
– Higher figure than the claimant count – approximately
half a million higher - because there are limits on who
can claim unemployment benefit

4. The Labour Market is Dynamic!
Employed
Labour force Unemployed
Out of the
labour force

5. Trends in UK Unemployment
Unemployment in the UK Economy
Unemployed people aged 16-59 (women) / 64 (men), seasonally adjusted
11 11
10 10
9 9
8 8
per cent of the labour force
7 7
Labour Force Survey
6 6
5 5
4 4
3 3
2 Claimant Count 2
1 1
0 0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Labour Force Statistics

6. Key trends in UK unemployment
• A long period of falling and then low
unemployment from 1992 (recession
peak) until 2008
• Steep increase in unemployment
following credit crunch and global
slump in 2008/09
• Likely to increase further during 2010

7. Unemployment and GDP Growth
GDP Growth and Jobs for the UK Economy
Total employment (bottom pane) and the annual growth of real GDP (top pane)
4 4
2 2
Percent
0 0
-2 -2
-4 -4
-6 -6
30.0 30.0
29.5 29.5
29.0 29.0
Person (millions)
28.5 28.5
28.0 28.0
millions
27.5 27.5
27.0 27.0
26.5 26.5
26.0 26.0
25.5 25.5
25.0 25.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Growth of Real GDP [ar 12 months]
Employment - millions, All aged 16 and over, seasonally adjusted
Source: Reuters EcoWin

8. Unemployment and GDP
• Between 1992 and 2008, almost 4
million extra jobs created by economy
• Strong link between sustained
economic growth (2-4% p.a.) and
employment creation
• Recession of 2008/9 has reversed the
trend; employment down by 0.5m

9. Main types of unemployment

10. Seasonal unemployment
• Regular seasonal changes in
employment / labour demand
• Affects certain industries more than
others
– Catering and leisure
– Construction
– Retailing
– Tourism
– Agriculture

11. Structural unemployment
• Arises from the mismatch of skills and
job opportunities as the pattern of
labour demand in the economy changes
• Often involves long-term
unemployment
• Prevalent in regions where industries go
into long-term decline
• Good examples include industries such
as mining, engineering and textiles

12. E.g. Decline of Manufacturing Employment
Employment in UK Manufacturing Industry
Millions, seasonally adjusted
7.0 7.0
6.5 6.5
6.0 6.0
5.5 5.5
Person (millions)
millions
5.0 5.0
4.5 4.5
4.0 4.0
3.5 3.5
3.0 3.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Source: Reuters EcoWin

13. E.g. Employment in Farming & Fishing
Jobs in UK Agriculture & Fishing
Thousands, annual average employment
700 700
650 650
Employment (Thousands) (millions)
600 600
millions
550 550
500 500
450 450
400 400
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Source: Reuters EcoWin

14. Frictional unemployment
• Transitional unemployment due to
people moving between jobs: Includes
people experiencing short spells of
unemployment
• Includes new and returning entrants
into the labour market
• Imperfect information about available
job opportunities can lengthen the
period of someone’s job search

15. Cyclical unemployment (business cycle)
• There is a cyclical relationship between
demand, output, employment and
unemployment in the overall economy
• Caused by a fall in aggregate demand
leading to a decline in GDP and
employment
• A slowdown can lead to businesses
laying off workers because they lack
confidence that demand will recover

16. Implications of unemployment for business

17. Possible business responses to unemployment
Low Unemployment High Unemployment
A chance to expand capacity to take Reduced production capacity if
advantage of higher demand demand falls
Adjust remuneration packages to Headcount reductions (redundancy,
remain competitive to attract staff recruitment freeze)
Invest in training to meet skills gap Reduce working capital (particularly
and help retain key staff inventories)
Offer more flexible working options to Postpone or cancel investment
attract larger labour pool projects
Consider outsourcing to access Potentially diversify into new markets
specialist skills where recruitment is
tough

18. Be careful – cause and effect
An increase in unemployment is likely
to be the result of an earlier
economic downturn – unemployment
is a “lagging indicator”
Many business responses are likely to
have arisen before unemployment
started to rise sharply

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