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Unemployment Employment and unemployment are concepts in economics that can be applied to any resource, not just labour. However, we will concentrate mainly around the concept of employment and unemployment of Labour.

Some Key Definitions Full Employment = is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions, are able to do so.

Full Employment is defined by the majority of economists as being:

“An acceptable level of natural unemployment” What does this mean? ● Unemployment above 0% is necessary to control inflation and keep it within the 1-3% PTR. ● This has brought about the concept of the NAIRU → Non-Accelerating Inflation Rate of Unemployment - NAIRU → the majority of mainstream economists mean NAIRU when speaking about "full" employment. → In New Zealand NAIRU has been suggested as a level of 4%.

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So what is happening with Unemployment in New Zealand in 2023?

Further stats on the recent data on employment in NZ (Feb 2023)

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What does it mean to be unemployed in New Zealand? We define an unemployed person as someone who: ● has no paid job ● is working age (15 years +) ● is available for work, and ● has looked for work in the past four weeks or has a new job to start within the next four weeks. The definition of unemployment often differs depending on how you measure unemployment. For example if you are looking for a job but have not registered with Work and Income NZ you could be classified as unemployed or alternatively not (i.e. jobless), depending on the measure. One thing in common with all measures though, is that you have to be actively seeking work to be unemployed.

Measurement of Unemployment Job Seeker Registered: ● People who are registered with Work and Income New Zealand and are actively seeking employment. Household Labour Force Survey (HLFS): ● This is the official unemployment rate showing the working age population (15+) without a paid job, available for work and actively looking. ● A quarterly sample survey measurement of about 15, 000 households, of which unemployment status is one of the topics. ● Note you only had to have worked 1 hour for payment to be considered employed by the HLFS. ● The HLFS excludes people in institutions and the armed forces

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People who are only in figure 2’s left section are represented in HLFS unemployment statistics People only in the right section are counted in Jobseeker Support and other benefit types. People in the middle section are represented in both measures. People in the right section may feature in the underutilisation measures, including as underemployed and as unavailable potential jobseekers. Because of timing and definitional differences, HLFS unemployment numbers and the numbers receiving Jobseeker Support – Work Ready or other benefits with work obligations do not always parallel one another. Figure 3 shows a time series of the two unemployment measures. Note how the measures generally move in a similar direction, but have different levels. Figure 3

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Does it make sense that the Jobseeker Support - work ready stats above are lower than the HLFS unemployment stats? why/why not? YES Because the HLFS includes people who are on a benefit AND people who are ineligible to receive a benefit Census: ● To be included in the Census unemployed you had to fulfill the following requirements: i. Working age population ii. Had less than 1 hour paid work per week iii. Actively seeking and able to start immediately Surplus Workers: ● Those who were without a paid job and available for work. Jobless ● HLFS unemployed (the official unemployed) plus those who are available for, but not actively seeking work. Limitations of Unemployment Measures Census: ● The Census is only measured every 5 years therefore the results are quickly outdated ● Takes a long time to process the results for 4.8 million people ● People may lie in their Census answers therefore making the results misleading HLFS: ● Only in practice since 1985 so not a long history for comparison purposes ● It does not show the amount of people that have never had a job, i.e. hard-core unemployment. ● It is a sample survey of only 15,000 people. General Limitations of All Unemployment Measures ★ Unemployment figures underestimate the true level because it does not show the people who drop out of the job market, such as mothers or those who do not register. ★ Figures can also be overestimated by counting people who are merely between jobs, as well as counting those people who work but do not notify the authorities, such as cash transactions for work

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Source

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Economic models to illustrate Unemployment Let’s revisit some models we have seen before 1.

Production Possibility Curve Model

Any point inside a production possibility curve (no matter how close to the curve) represents unemployment of resources.

Any movement from a point inside the curve to a point closer to the curve represents economic growth resulting from increasing efficiency of existing resource use. This will result in declining unemployment / Increased employment This can be seen in the adjacent PPC Model

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Fully Explain the changes made to the PPC Model above

Any point inside the PPC means some resources are unemployed e.g point A. In order to illustrate declining unemployment we must show that more resources are being employed and therefore we are shifting from point A towards Point B where more resources are fully utilised. With increased resource use / employment at point B it is now possible to produce more capital goods per year and more consumer goods per year. This is illustrated by the lines and arrows on the PPC model showing movement further away from the origin.

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2.

The Business Cycle Model

The business cycle refers to the recurring pattern of economic expansion and contraction that occurs in a market economy. It typically consists of four phases: expansion, peak, recession/contraction, and trough. During the expansion phase, the economy is growing, and businesses are investing, expanding, and hiring more workers. As a result, employment levels tend to be high, and wages may rise as companies compete for workers. At the peak of the business cycle, the economy reaches a temporary maximum level of growth, and some sectors may become overheated, leading to inflation and a potential bubble. Employment levels may start to plateau or decline as businesses become cautious about taking on additional workers. In the contraction phase, the economy begins to slow down, and businesses may cut back on investments and hiring. This can lead to higher levels of unemployment, as businesses reduce their workforce to cut costs. At the trough of the business cycle, the economy hits its lowest point before beginning to recover. During this phase, unemployment levels may be high, and businesses may be reluctant to invest or hire due to economic uncertainty. Overall, understanding the business cycle is essential for economists and policymakers to make informed decisions about monetary and fiscal policies. By recognizing the phase of the business cycle, they can adjust policies to promote economic growth or manage economic downturns, leading to better outcomes for workers and businesses alike.

Name the stage of the business cycle where unemployment is falling and explain why Expansion leading to PEAK because Aggregate

Demand is rising. This increases the price level and firms are willing to supply more at the higher price level causing real output (AS) to increase.

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DERIVED DEMAND - Demand for labour is derived from the demand for goods and services available for sale. Therefore, when there is more demand for goods and services in the expansion phase of the business cycle there will be more demand for labour/employment to produce the growing output.

At which stage in the business cycle does unemployment

begin to rise?

Name the stage and explain why. Immediately after the peak on the business cycle the recession/ downswing/downturn phase begins to occur. It is here that Unemployment will begin to rise as Aggregate demand starts to fall and less labour is demanded to produce falling levels of output. At which stage in the business cycle pictured above is unemployment likely to be at its highest? Name the stage and explain why. When the business cycle reaches the trough Unemployment is likely to be at its highest. This is because Aggregate Demand for goods and services is at its lowest and therefore demand for labour (employment) will be lower than at other stages in the business cycle. At which stage in the business cycle does unemployment begin to fall? Name the stage and explain why. At the beginning of an up-turn/up-swing more goods and services are being produced and therefore the demand for labour increases. This means more workers are needed to produce greater output and therefore employment rises and unemployment begins to fall.

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Causes of Unemployment There are 3 main causes of Unemployment 1. Cyclical Unemployment 2. Structural Unemployment 3. Frictional Unemployment

1. Cyclical Unemployment ● Cyclical unemployment results from a downturn in economic activity (falling aggregate demand and supply) ● This can be observed as GDP / Economic Growth becoming stagnant or falling ● This is the most serious cause of unemployment because cyclical unemployment is widespread across many industries in the economy and can occur over a prolonged period of time 2. Structural Unemployment ● Structural unemployment results from the labour markets inability to match workers skills with the jobs available ● Advances in technology may result in workers being replaced by capital intensive production methods ● Firms may shift manufacturing operations overseas to take advantage of: → lower wages/costs of production → closer to major markets reducing transport costs ● Some products may become obsolete / outdated and therefore, a single industry ceases production and labour is no longer required, for example DVD rentals.

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● 3. Frictional Unemployment ● Frictional unemployment results from normal market turnover ● Workers may be between jobs, for example a waitress may leave one restaurant job and have a break of several weeks before beginning work at a new restaurant ● Seasonal workers eg fruit pickers or ski field workers may also experience a period of frictional unemployment before the next fruit crop is ready to be picked or before travelling overseas for winter in the northern hemisphere ● People who are experiencing frictional unemployment do not anticipate remaining unemployed for a long period of time. ● Frictional unemployment is the least serious form of unemployment as it is a form of temporary unemployment.

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Task State an example for each of the three types of involuntary unemployment and explain why each is that particular type. Frictional:

Structural:

Cyclical:

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Complete the Table Below

SITUATION Closure of coal mines makes 300 redundant.

TYPE OF UNEMPLOYMENT structural

A secretary leaves one job on the 14th and starts another on the 30th of Feb.

frictional

A landscape contractor fails to get a job between July and August because of weather problems.

frictional

Increases in savings cause a slump in sales in a number of industries.

cyclical

Because skateboards have gone out of fashion a skateboard maker loses his job.

structural

A slump causes unemployment in a wide range of industries.

cyclical

A rock group finds themselves without a gig for a fortnight.

frictional

Steelworkers lose their jobs when the Robert Jones building is finished.

structural

Closure of a car manufacturing plant.

structural

An expert raspberry picker is unemployed for several months.

frictional

A secretary is laid off now that her boss has a new software package that she speaks into and it types for her.

structural

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4. The Labour Market Model The tool that we use to analyse the labour market is the Supply and Demand Model. The Labour market is influenced by supply and demand like any other market, but there are some key differences that need to be noted. The Goods and Services Market

The Labour Market

Demand for products comes from Consumers. Consumers are willing and able to buy a good or service

Demand for LABOUR comes from...

Supply comes from Producers. Producers are willing to exchange goods or services for revenue (income from sales)

Supply of LABOUR comes from...

A good or service is bought and sold

What Does the Labour Market Model Look Like?

★ Individuals willing to work at the equilibrium wage will be employed → illustrated as the distance between the origin and Qe ★ Individuals who are not willing to work at the equilibrium wage are voluntarily unemployed → illustrated as the distance between Qe and Qmax

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Important Definitions Nominal Wage - the current dollar value of wages (W) e.g. $18 per hour Real Wage - The wage measured in terms of the value of goods and services it can buy → the purchasing power of wages calculated as Nominal Wage Rate/Price Level Note: Supply and demand of labour is determined by the real wage rate. What is the real wage rate if the rate of inflation is 3%? Nominal Wage Rate = $18.90 per hour Rate of Inflation = 2% Real Wage Rate = Nominal Wage Rate / 1+ rate of inflation expressed as a decimal

Real Wage Rate = $18.90/ 1.02 = $18.53 Dis-equilibrium in the Labour Market As in the commodities market, the labour market is often found in dis-equilibrium. LABOUR SURPLUS A wage rate higher than the equilibrium will create a

LABOUR SURPLUS

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At the minimum wage rate producers are only willing to employ Qd amount of people, thus that is all that is employed. However, the amount of people willing to work at this wage rate is Qs. The group of people between Qd & Qs are the involuntary unemployed → they are willing to work but unable to find work. The group of people from Qs to Qmax are not willing to work at this wage rate and thus are voluntary unemployed (VU). Quantity Supplied of Labour EXCEEDS the Quantity Demanded of Labour (QS>QD) LABOUR SHORTAGE A wage rate lower than the equilibrium will create a LABOUR

SHORTAGE

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The distance on the model above representing employment is... However, the amount of labour demanded at this wage rate is... The group of people from Q1 to Q2 are not willing to work at this wage rate and thus are voluntarily unemployed (VU).

Demand for Labour Demand for labour is referred to as derived

demand

Derived demand = the demand for a resource, such as labour, is dependent on the demand for final goods and services

Show the effect on the labour market for the following situations:

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Labour and Technology are closely related ·

An increase in technology has two broad effects on the labour market.

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The Supply of Labour Defining the Labour Supply The labour supply refers to the total number of hours that labour is willing and able to supply at a given wage rate. It can also be defined as the number of workers willing and able to work in a given occupation or industry for a given wage. The labour supply curve for any industry or occupation will be upward sloping. This is because, as wages rise, other workers enter this industry attracted by the incentive of higher rewards. They may have moved from other industries or they may not have previously held a job, such as school leavers or the unemployed.

Key factors affecting Labour Supply The supply of labour to a particular occupation is influenced by a range of monetary and non-monetary considerations. ●

The real wage rate on offer in the industry itself : A higher wage rate may attract more labour.

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Substitute occupations: The real wage rate on offer in competing jobs.

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Barriers to entry: Artificial limits to an industry’s labour supply e.g. through the introduction of minimum entry requirements or other legal barriers to entry.

The length of time it takes to qualify as an architect restricts the labour supply and keeps salaries high

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Improvements in the occupational mobility of labour: For example if more people are trained with the necessary skills required to work in a particular occupation

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Non-monetary characteristics of specific jobs – these can be important – they include factors such as the level of risk associated with different jobs, the requirement to work anti-social hours or the non-pecuniary benefits that certain jobs provide including job security, opportunities for promotion and the chance to live and work overseas, employer-provided in-work training, employer-provided or subsidised health and leisure facilities and other in-work benefits including occupational pension schemes

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Net migration: a rise in migration will lead to increased supply of labour

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School leaving age: when the school leaving age rose to 16 years there was a decline in the supply of labour as some students stayed at school longer than they otherwise would have chosen to.

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Retirement age: it is inevitable that the retirement age will rise in the future. When this happens the supply of labour will increase as workers will have to wait longer to access their pensions.

Sunrise Industries A sunrise industry is one that is new or relatively new, is growing fast and is expected to become important in the future. Examples of sunrise industries include hydrogen fuel production, space tourism, and online encyclopedias.

Sunrise industries are growing fast and experiencing high demand for their goods and services. Demand for labour in Sunrise Industries will RISE

Use the 3 models below to illustrate and fully explain rising demand for labour in SUNRISE INDUSTRIES.

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Model 1: The Labour Market

Sunrise industry → growing rapidly → high demand for goods/services therefore → increasing demand for labour to enable the firms to produce more output to satisfy rising demand. Demand for labour is derived demand → dependent on the demand for goods and services → as demand for G and S increases, the demand for labour will increase also. Model 2: The Production Possibility Curve

Points A, B and C represent possible combinations of resources (including labour) used to make Goods X and Y in a sunrise industry. Moving from Point C to point E represents using greater quantities of available resources, including labour to produce more of both Good X and Good Y (output from the sunrise industry). The dotted lines indicate rising output of both Good X and Good Y when more resources / labour are employed. Assuming output of Y is occurring in a Sunrise industry and output of x is occurring in a Sunrise industry

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Model 3: The AD/AS Model

Sunrise industries experience high growth in demand for their output. This is shown by the AD curve shifting right from AD to AD1. This causes the price level to rise from PL to PL1. Firms increase their quantity supplied to the market (a movement up the existing AS curve) as it is now relatively more profitable to supply the market as the gap between revenue and costs of production has widened. More goods and services are able to be produced and output rises from Y to Y1. The impacts on employment are also evident on the graph. At the original equilibrium employment is illustrated by the distance between O and Yo. When the AD curve shifts to the right to AD1 the level of employment rises and this is illustrated by the distance between O and Y1. Employment has increased. Sunset Industries A sunset industry is an industry in decline, one that has passed its peak or boom periods. One example of this is the DVD hire industry. This has been made obsolete by streaming services such as Netflix, Lightbox. Neon etc. Sales have declined dramatically and are not expected to recover, so this segment of the market has been branded a 'sunset industry'.

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Last Video Ezy Store

Sunset industries are declining fast and experiencing low demand for their goods and services. Demand for labour in Sunset Industries will fall

Use the 3 models below to illustrate and fully explain falling demand for labour in SUNSET INDUSTRIES. Model 1: The Labour Market

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Sunset industry → declining rapidly → low demand for goods/services therefore decreasing demand for labour as firms produce less output in response to falling demand. Demand for labour is derived demand → dependent on the demand for goods and services. So as demand for goods and services falls, the demand for labour will also fall.

Model 2: The Production Possibility Curve

Points A, B and C represent possible combinations of resources (including labour) used to make Goods X and Y in a

sunset industry.

Add Point E to the model above Moving from point E to point C represents using smaller quantities of available resources, including labour to produce less of both Good X and Good Y (output from the sunset industry). The dotted lines indicate falling output of both Good X and Good Y when fewer resources / labour are employed. Assuming output of Y is occurring in a Sunset industry and output of x is occurring in a Sunset industry.

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Model 3: The AD/AS Model

Sunset industries experience low growth in demand for their output. This is shown by the AD curve shifting left from AD to AD1. This causes the price level to fall from PL to PL1 and firms are willing and able to supply a smaller quantity to the market as it is relatively less profitable to do so. Output falls from Yo to Y1. Firms decrease their quantity supplied to the market (a movement down the existing AS curve) as it is now relatively less profitable to supply the market as the gap between revenue and costs of production has become smaller. Fewer goods and services are able to be produced and output falls from Y to Y1. The impacts on employment are also evident on the graph. At the original equilibrium employment is illustrated by the distance between O and Yo. When the AD curve shifts to the right to AD1 the level of employment falls and this is illustrated by the distance between O and Y1. Employment has decreased.

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Social and Economic Effects of Unemployment Unemployment has a range of Social and Economic Impacts on individuals, their families and communities What's it like to be young and unemployed in New Zealand? SOCIAL EFFECTS ●

Stress related conditions and behaviours escalate

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Increase in marriage/relationship break-ups & breakdown of the family unit

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violence both domestic and general increases

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crime rates accelerate

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damage to property escalates

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alcoholism/drug addiction and problem gambling rates rise

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reported illness and mental health issues rise

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suicide rates begin to rise, particularly in youth

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abandonment of animals and animal cruelty rise

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demand on food banks and charity organisations increases.

ECONOMIC EFFECTS ●

household incomes fall in households experiencing unemployment

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social welfare spending increases as more people are on unemployment benefits

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inequality increases as the gap between the rich and poor widens

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self-employment rises as people use redundancy payments to create jobs for themselves

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inefficient resource use/ more resources are unemployed / underutilised

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economic growth falls as velocity of circulation falls

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inflation falls with declining economic activity and economic growth

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business confidence falls as firms fear hard times ahead and stop investment

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consumer confidence declines as consumers are no longer willing to take the risk of borrowing to fund purchases.

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the level of savings declines as the unemployed are forced to rely on savings to live on

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reduced Government tax revenue as both direct and indirect tax revenue falls.

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Regional stagnation as jobs in key industries are lost

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The Effects of Unemployment on individuals are felt differently depending on: ★ Age → Young people are usually debt free and have few ties such as dependent children or relatives → this results in high mobility where young people are free to move to where the jobs are → young people have the time to retrain → Older people usually have greater wealth eg mortgage free, have savings, asset rich → this means older people are able to live off their assets/savings during a period of unemployment → they are likely to have more ties, such as dependent family members, which can prevent them from moving to where the available jobs are. → less willing and able to retrain as they would experience significant reduction in income and ability to maintain their lifestyle, savings, debt repayment. → older people may have greater health risks associated with unemployment

★ Gender → gender stereotypes may make it difficult for the unemployed to apply for jobs that are available eg an unemployed woman seeks employment as a mechanic or builder or an unemployed man seeks employment as a preschool caregiver or florist etc → there may be reluctance by employers to employ women who are in the age range to have children → sexism may affect women hoping to join or rejoin the labour force.

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→ Gender fluid individuals may experience bias, bigotry or ‘genderrism’ when seeking employment.

★ Labour market flexibility → some workplaces offer childcare/breastfeeding facilities as part of their business making it easier for parents to return to work → flexible hours/flexitime may allow some individuals to work from home on certain days of the week, work their 40 hours per week at times that suit the employee while other workplaces are totally inflexible → some workplaces allow workers to commute from different cities to their place of work eg live in Christchurch but work in Wellington. → certain workplaces provide accommodation and food to employees required to work in out of the way places eg roading contractors working on state highway earthquake repairs have accommodation provided and paid for by their employer and meals prepared and provided by the Employer.

★ Stage of Life → single young adults with no dependent spouse or children will be more likely to move regions for employment purposes as they have fewer ties to a city, town or region → parents of a young family are less likely to move regions for employment purposes because they rely on the support of family and friends to raise their children → they are also less likely to retrain because they rely on a consistent income from working to support their Partner/Wife/Husband/ Children → retirement aged adults usually have wealth and savings that they can live off in the event of Unemployment. → they can also rely on superannuation/pension benefits for a regular source of income → less likely to take the risk to retrain in a new area of skill/employment → less likely to be prepared to relocate to a region where there are greater employment Opportunities due to family ties.

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★ Region of NZ → some regions have a much higher rate of unemployment per capita, than others.

→ If you live in one of these regions, such as Northland, it will be much harder to gain employment as the competition for jobs will be intense and there will be fewer jobs available than in other Regions For the latest 2019 reports on regional unemployment click HERE ★ Skill levels, qualifications, transferability of skills → individuals with low/no skills/no experience will find it much more difficult to enter / re-enter the workforce than the unemployed who do have qualifications, skills and work experience → the unemployed who have skills that are transferable into other jobs/careers will be more likely to be unemployed for a shorter period of time eg a person with retail experience in shoe sales can apply for retail positions in other industries such as clothing, furniture or car sales.