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Unemployment in United Kingdom

Many people are unemployed in different countries. The economy currently is pondering on the financial crisis, while many companies are running out of business. Thus, the report is analyzing the unemployment in UK bring out the causes and consequences of unemployment. The report further analyzes impacts to the economy and ways that can reduce unemployment. 2. 0 Unemployment in UK In the case of UK, unemployment can be defined in two ways: either unemployment is the eligibility of a job seeker’s allowance or being in search for employment.

Under the definition of job seeker’s allowance by 2005, one million people were unemployed. In the second definition, searching for employment, there were 1. 5 million people. The 1. 5 million people represent about 5% of the total workforce. This figure declined from 10. 5% that was in 1992, the figure has decreased because there has been no major interruption of the economic growth. However, the current financial credit crunch has resulted to cyclical employment (Thirlwall 2007). 3. 0 Types of Unemployment in UK 3.

1 Frictional Unemployment In any economy, there is nothing like a 100% employment such as depicted in a preserved museum exhibit. The pattern of demand causes some industries to grow and employ new employees while some industries loose there command in the market place resulting in shedding of labor force. Frictional unemployment implies that an employee shifts from one occupation to the next or new graduates looks for employment (Thirlwall 2007). When the economy fall people loose employment and begin to look for another job.

Thus, the time that the worker seeks for the job from identification to interview and starting the work takes time. This time results to frictional unemployment. Thus, frictional unemployment is due to the lag that is caused by imperfect mobility between jobs. In the case of UK, the time that takes to be employed or the mobility between jobs is more than six weeks in average. Four hundred thousand people are made redundant in the UK every month, because of the lag of six weeks it result in six hundred thousand people unemployed each month.

This contributes to about 40% of the unemployed figure in the market. This problem cannot be eliminated but can be reduced to manageable levels. 3. 2 Structural Unemployment In UK, there are some regions that a worker would be ambitious to think that he can be employed within the six weeks. There are regions that are characterized by intensive heavy industries such has coal mining, textiles and steel. However, when these industries declines in its operation results in a vacuum in the labor market of that region. It results in hundreds to thousands of workers looking for employment at the same time.

Consequently, capital-intensive industries that join these environments are not able to employ all people who are at this place or they offer few jobs. Other areas that were been supported (shops, hotels and entertainment) by the local industries will feel the pinch resulting in shedding more labor into the saturated job seekers force. This results into structural unemployment and is the main cause of unemployment in the conurbations of north and midlands. For example in the 1980s, structural unemployment was evident in areas such as Manchester, Sheffield and Glasgow, which rose to 20%.

Of late, the unemployment has decreased but there are few pockets in the inner city because of traffic congestion, restricted space and pollution. The UK government tried to solve this problem by providing subsidies. For example in the 1970s-1980s, government offered subsidies to Linwood car factory. Additionally, there are modern strategies that offer footloose industries with subsidies and encouraging workers to register in retraining courses (Spring 2008). Many regions and industries in UK specialized in manufacturing in the mid twentieth century.

These manufacturing companies were under-supplied. However, when they realized that third world countries had enough raw materials, they started importing the cheap raw materials, convert them into expensive products and then return them to the third world countries. However, technology has changed and the technology is been absorbed by many industries and manufacturing companies making the unskilled labor lose employment. The third world countries have started their manufacturing and industrial organizations that produce cheap products.

Thus, the products are exported to UK and are sold cheaper resulting in the local industries loosing their markets ensuing in reduction of production leading to some industries been closed. Hence, many people loose their employments and become structural unemployed (Hughes 2006). 3. 3 Cyclical Unemployment This kind of unemployment is caused by inadequate effective aggregate demand. This means there are many people who are looking for employment but the opportunities are few. Currently, the world economy is experiencing financial credit crunch.

Many companies are not producing to their limits while others have been closed. Banks, industries and manufacturing firms are reducing their employees so that they can navigate through the current hard times that are associated with recession. This results in many people loosing employment because of recession and they collectively called cyclical unemployed people (Smith 2007). 4. 0 Economic Consequences of Unemployment When unemployment persists, it is a sign of market failure since unemployment wastes scarce resources, which leads to loss and reduction of allocated efficiency and potential output.

This is because the economy operates below the highest output that it can achieve. For example, in the time of recession, contraction will be seen in real national output and the economy operates below the full capacity (Perlman 2007). When unemployment decreases the economy of the country begins to move towards macroeconomic equilibrium. In the year around 2000, the economy of UK was growing (GDP). This was because of the attempts to decrease unemployment through solving problems that are associated with frictional and structural unemployment.

Thus, unemployment is inversely proportional to economic growth. Redundancies in training and educating workers wastes a lost of resource because the worker will stay out of the market for a long time affecting the workers motivation and loss of skill. Hence, it affects the economic growth potential of a region. Moreover, unemployment affects negatively on the government finances because of higher unemployment benefits, welfare payments and the falling revenues from national insurance, VAT and income tax.

This means it also affects the way that consumer spends because of loss of confidence in the market and people builds up precautionary savings. 5. 0 Reducing Unemployment 5. 1 Immobility of Labor- Supply Side Policy The immobility of labor is caused by market labor failure plus structural unemployment. To solve such issues the government is providing means to obtain skills that will assist the unemployed to be re-employed or to improve incentives to get work quickly. This will improve the human capital through work place training and the quality of education.

Currently, the government does not maximize the utilization of work place training and underestimates the benefits that are associated with training to the employees and business. 5. 2 Benefit and Tax Reform The value of incentives and benefits is high; reducing these benefits may trigger unemployed people to look for jobs. Moreover, the people who are given incentives should be linked with people participating in work experience programs. Nevertheless, introduction of new tax measures especially to those occupations that receive low incomes will likely motivate unemployed to take into consideration this opportunities.

5. 3 Reflating Aggregate Demand The government may employ macro-economic policies that are designed to increase aggregate demand which will likely increase national income resulting in employment. The reflationary policies mitigate effects of recession through the use of both monetary policy and fiscal policy. The government may utilize regional policies that will increase inflows of foreign investment to those areas that the rate of unemployment is above the national average. 5. 4 Subsidies on Unemployment

Government should provide incentives to those organizations and businesses that take into consideration long-term unemployed so that they can increase their work force. Moreover, the UK government should give employment subsidies to internationally organization that invest in areas where other companies are not entering (Perry 2003). 6. 0 Conclusion Unemployment is a contagious problem and affects social and economic conditions of people who are involved. In the case of UK, the common causes of unemployment are structural and frictional unemployment.

Frictional unemployed occurs during shifting from one job to another. People shifting jobs may be unemployed for more than six weeks. Structural unemployment is caused by fluctuation of industrial and manufacturing focus in terms of profitability. When an organization production decreases results in many people been unemployed and affects those organizations that affect the same industries. This results in many people from diverse industries losing their employments. Cyclical unemployment is caused by recession in economy.

This is the common unemployment cause current in UK and other developed countries in the world. Unemployment affects the economy of UK greatly. The government will have to have complications in financial policies through welfare incentives and allowances to people who do not have employment. Moreover, the government looses a lot because of wastage of resources through retaining of the employees. The solution to these problems is through providing incentives to investors, reflating aggregate demand and labor mobility.


Hughes, J. 2006. The Economics of Unemployment. New York: McGraw Hill Publishers. Perry, C. , 2003. Unemployment in United Kingdom. Journal of Business, 5(7), pp. 67-68. Perlman, R. 2007. Business Management Systems. London: Cambridge University Publishers. Thirlwall, P. 2007. Regional Growth and Unemployment in the United Kingdom. London: Oxford University Press. Smith, L. , 2007. Labor Studies and Management. New York: Prentice Hall Publishers. Spring, H. 2008. Unemployment vs. Recession. Business Economics Journal. 10(9), pp. 123- 126.

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