Mr E Mc Kee
Those registered able,available and
willing to work at the going wage
rate in any suitable job.
There has been around 30 redefinitions
of unemployment since 1979.
29 of which reduced the unemployment
There are two main measures of
The claimant count.
Those out of work and claiming benefits (JSA)
The ILO measure.
Based on the labour force survey.
Those who have looked for work in the last month
and can start in next two weeks.
The ILO measure is about 400,000 larger than the Claimant count
The causes of unemployment.
Economists differ on what causes
There are three main causes.
Real wage unemployment
Demand deficient unemployment
Equilibrium / natural rate of
Real wage unemployment.
Occurs when real wages are forced above the market clearing wage, e.g. by
trade unions. This lead to dis-equilibrium unemployment.
Policies for real wage
If unemployment is caused by wages
being forced above the market clearing
level, then best cure is to reduce real
Reducing the power of trade unions.
Abolishing the NMW.
Also known as cyclical unemployment. Occurs when AD falls below the full
Policies for demand deficient
Usual response is to increase aggregate
Fiscal policy. (increase G and decrease T)
Monetary policy. (decrease interest rates)
Exchange rate policy. (depreciate the
Occurs when total number of jobs
available equals the number of people
Two main types of equilibrium
Reflects job turnover in labour market.
Takes time to search and find employment
• Policies for frictional unemployment.
Reduce unemployment benefit.
Reduce time over which it is paid
Improve job information. (job centres)
Occurs due to a mismatch between the skills
of the unemployed and those needed by
Policies for structural unemployment.
Improve education and training
Welfare to work schemes. (new deal)
Regional grants to encourage firms to move to
unemployment black spots
Improve geographical mobility of labour.
Current government policy for
Government believe that unemployment
is at the NRU.
(approx 1million as measured by the claimant count)
• Therefore the only way to reduce
unemployment is to reduce the NRU.
Give the unemployed the incentive to take up
employment by making work pay.
Give the unemployed the skils required to secure
The carrot and stick approach.
Reducing income tax. (new starting rate –
Reducing and targeting benefits. (JSA only
payable if you seek work)
New deal programme.
Advice and support to help unemployed
Working families tax credits. (working
family guaranteed £200 per week)
Unemployment in NI.
The Claimant count has fallen from 8% to 4%. Some of this could be explained
by changes in the way it is measured and the introduction of JSA.
Why has unemployment fallen
in recent years.
ILO unemployment has fallen from
10.5% in 1995 to 5.9% in 2001.
This could be explained by;
Sound macro economic management.
Growth in Republic of Ireland