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Economics
Chapter 2
Unemployment
Unemployment A person is unable to find a job although he is able
and willing to work.
Jobless ≠ Unemployed
Population
Labour force
Non-labour force
Employed population
Unemployed population
Labour force (The Census and Statistics Department of Hong Kong)
Labour force means
1. Employed population All people aged 15 or above who work for payment and
profit.
Including Self-employed people 自僱人士 (e.g. newspaper stand owner)
Employers 僱主 (e.g. the boss of a company)
Employees 僱員 (e.g. the salesperson of a shop)
Family members working for a family business without pay
Paid apprentices 受薪學徒
Labour force (The Census and Statistics Department of Hong Kong)
Labour force means
2. Unemployed population All people aged 15 or above who are jobless
Do not work for payment or profit
Looking for jobs
Able to work anytime.
Labour force (The Census and Statistics Department of Hong Kong)
In short, labour force refers to residents in a region who are able and willing to work anytime.
Labour force = Employed population + Unemployed population
Non-labour force
Non-labour force means all residents who are not classified as employed or unemployed.
Including: People aged under 15
Retirees (no plan to work to earn incomes)
Permanently disabled (incapable to work)
Housewives (no plan to work to earn incomes)
Full-time students (no plan to work to earn incomes)
HK’s situation
At the end of 2010
Population = 7,097,600 (approximate)
Jan – Mar, 2011
Labour force = 3,701,800 (approximate) Employed = 3,577,300
Unemployed = 124,500
Non-labour force = 3,395,800 (approximate)
Check point (Textbook p.49)
Classified as unemployed?
Reason
Mr. Chu can’t work permanently after an accident and relies on the CSSA.
Yes / No - Unable to work
After university graduation, Miss Chan works as a private tutor at home.
Yes / No- Working for
payment
Mrs. Wong, a retiree, provides community services and volunteer work.
Yes / No- Not belong to
labour force
Ted, aged 16, has not been able to find a job since graduation from secondary school.
Yes / No- Jobless- Able and
willing to work
Who is classified as unemployed?
Types of unemployment
1. Frictional Unemployment
a temporary condition.
individual is out of his current job and looking for another job.
The time period of shifting between two jobs is known as frictional unemployment.
2. Structural Unemployment:
structural changes within an economy.
mismatch of skilled workers in the labor market.
Individual has
low geographical mobility
low occupational mobility
technological change
Types of unemployment
3. Classical Unemployment
also known as the real wage unemployment or
disequilibrium unemployment.
when trade unions and labor organization bargain for higher wages, which leads to fall in the demand for labour.
4. Cyclical Unemployment:
recession
aggregate demand for goods and services decreases
demand for labor decreases
Types of unemployment
5. Seasonal Unemployment:
due to the seasonal nature of the job is known as seasonal unemployment.
e.g. tourism industries, fruit picking industries
Seasonal unemployment in HK
May and July: Unemployment
A large number of graduates (universities and secondary schools) join the labour market.
Students seek for part-time job during summer vacation.
Fresh graduates are hard to find work.
September: Unemployment
Some graduates return back to school for further studies
Part-time students have school re-open
Unemployment rate
Unemployment rate =
YearLabour force(thousand)
Employed population(thousand)
Unemployed population(thousand)
Unemployment rate
2009 3,000 2,850 150 5%
2010 3,200 2,976 224 7%
2011 3,500 3,300 200 5.71%
Unemployment rate in HK
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
HK Unemployment rate (1997-2010)Unemployment rate (%)
Year
1998Financial Crisis
2001911 Terrorist Attack
2003SARS Outbreak
2003 onwardCEPA
2008Financial Tsunarmi
Underemployment
An employed person
Involuntarily works less than 35 hours a week
Able to work more
Underemployment population 就業不足人口 Underemployment rate 就業不足率
Underemployment rate =
Cost of unemployment
Cost to the unemployed
No income Low living standard to individual / family
Mental problem Stress and frustration
low self-esteem
bad family relationship
Unable to accumulate human capital e.g. experience
Less able to work or find a job
Long-term unemployment
Cost of unemployment
Cost to the society Losses in output
Labour resources are not fully utilized Not full employment No maximum national income
Hinder the growth in productivity Unable to accumulate experience low productivity
Social / Criminal problems Domestic violence Divorce Emotional problem Theft or other criminal cases
Discourage social harmony Hostility to the rich
Cost of unemployment
Financial assistance to unemployed / Unemployment benefits
A kind of transfer payment. (not cost to the society)
Unemployment benefits
Increase in gov’t expenses Social welfare expenses, C.S.S.A.
Subsidies on vocational training
Increase the gov’t financial burden
Decrease in gov’t income Less salaries tax revenue
Inadequacy of unemployment rate The unemployment rate can’t fully reflect changes in
economic welfare.
Unemployment rate over-estimates the problem if False report of unemployment
Some people may give up job for financial assistance
Value of leisure time Unemployed more leisure time beneficial
Frictional unemployment Looking for better job
Unemployment rate under-estimates the problem if Underemployment
Unemployment rate can’t show the problem of underemployment
Should the gov’t increase unemployment assistance?
Individuals For: Unemployed can have wealth redistribution Better living
Against: Taxpayers need to share higher tax burden
Society For: Fewer personal / family / social problems
Against: incentive to report unemployment
Economy Against: incentive to work or find a job
tax rate to support financial assistance
cost of investigation
Questions on unemployment
Which of the following is regarded as unemployment?
A. Ken is a full-time student.
B. Fanny is unable to find a job after quitting her previous position.
C. Frankie is not looking for a job because he is permanently disabled.
D. Siu Mei is working in a family tuck shop without pay.
Answer: B
Which of the following belongs to the labour force?
A. A retiree.
B. A full-time housewife.
C. A university graduate who is jobless and has been looking for a job since graduation.
D. A student who studies in Japan returns to Hong Kong during the holidays.
Answer: C
Questions on unemploymentStudy the following data about employment in an economy:
Calculate the unemployment rate and the underemployment rate.
Answer:
The unemployment rate =
= = 10%
The underemployment rate =
= = 7%
Number (thousand)
Employed 900
Unemployed 100
Under-employed 70
Questions on unemployment
If the underemployed population decreases and the labour force increases, which of the following conclusions can we draw?
(1) The unemployed population will increase.
(2) The underemployment rate will decrease.
(3) The unemployment rate will decrease.
A. (2) only B. (3) only C. (2) and (3) only D. (1), (2) and (3)
Answer: A
If the employed population decreases and the labour force increases,
(1) the unemployment rate must increase.
(2) the unemployed population must increase.
(3) the underemployment rate will decrease.
A. (1) and (2) only B. (1) and (3) only
C. (2) and (3) only D. (1), (2) and (3)
Answer: A
Questions on unemployment
John plans to quit his job and further his studies. Explain whether he will be classified as unemployed. (2%)
Answer:
Unemployment refers to a person who is willing and able to work but does not find a job. (1%)
John is not unemployed because he is not going to find a job. (1%)
John is unemployed and is receiving unemployment benefits. Explain whether unemployment benefits are the cost of unemployment to society. (2%)
Answer:
No. Unemployment benefits are only a kind of transfer payment. (1%)
John receives the money that is paid by the government. Society as a whole does not bear any cost. (1%)
Questions on unemployment
The following is the data of a country.
a. Fill in the blanks in the table. (3%)
b. State TWO costs of unemployment to society. (4%)
Answer:
- Reduced social output.
- Reduced overall human capital accumulation, leading to slower in productivity growth of the economy.
- Increased crime rate.
Year The employed The under-employed
The unemployed
The unemployment rate
2007 9,000 500 750 7.7%
2008 9.200 450 800 8%
2009 10,500 300 1,500 12.5%