Unit two the labour market

LEAD-IN

Read the article and answer the questions that follow.

The labour market is a term used to describe the relationship between the workplace (available employment) and the workforce (people, aged 16 and over, who are working or are available to work). A labour market is said to be healthy if there is enough work available for all those who seek it. Most countries in the world have some difficulty achieving or maintaining a healthy labour market.

Labour markets may be local or national (even international) in their scope and are made up of smaller, interacting labor markets for different qualifications, skills, and geographical locations. They depend on exchange of information between employers and jobseekers about wage rates, conditions of employment, level of competition, and job location.

Firms' ability to make changes to their workforce in terms of the number of employees they hire and the number of hours worked by the employees is called Labour Market Flexibility. A flexible labour market is one where firms are under fewer regulations regarding the labour force and can therefore set wages (i.e. no minimum wage), fire employees at will and change their work hours. A labour market with low flexibility is bound by rules and regulations such as minimum wage restrictions and requirements from trade unions.

In fact we find that a flexible labour market has several characteristics:

Occupational (functional) flexibility – this refers to the ability of the workforce to perform different tasks and to acquire and apply transferable skills. A worker with transferable skills will be able to move easily from one job to another – they will be occupationally mobile. Flexibility can also be encouraged by better training, and provide incentives for people to adapt their skills.

Contractual flexibility: In many industries, workers are now offered jobs on six months, sometimes on month-to-month contracts. There are even some instances of zero hour contracts – where the number of hours that someone is asked to work will vary from week to week – but with no guarantee of any hours being available at all.

Wage flexibility: Wage flexibility refers to the ability of changes in real wages to eliminate imbalances between the supply of and demand for labour.

Geographical flexibility: Many businesses now expect their workers to be able to move within and across different regions and countries as part of their career development. There are always natural barriers to geographic mobility of labour, particularly across national borders, but also within individual countries. These barriers relate to family commitments, career progression and benefits and property (for example the costs involved in moving home).

Employment is the primary source of personal income and has a major influence on consumer spending and overall economic growth. Thus, the unemployment rate, which is a lagging indicator, and is the percentage of the total labor force that is unemployed but actively seeking employment and willing to work can provide considerable information about the state of the economy or the health of particular business sectors. For example, high unemployment generally indicates that an economy is underperforming or has a falling GDP.

Even in a healthy economy, there will always be some level of unemployment. The natural rate of unemployment (also known as the non-accelerating-inflation rate of unemployment, or NAIRU) is the unemployment rate that occurs because workers are always coming and going, looking for a better job, and often they are unemployed until they find that better job. NAIRU- is the lowest level of unemployment at which inflation will remain stable. When unemployment is above the natural rate demand can potentially be increased to bring it to the natural rate, but attempting to lower it even further will only cause inflation to accelerate. Economists still disagree over what jobless rate at any particular point in time is the NAIRU, but nobody any longer thinks that the natural rate is fixed. Indeed, some think the concept has no meaning at all.

The unemployment rate can be a good indication of the economy's state. High unemployment rates show a lack in the growth of the economy and vice versa. Also, high levels of unemployment result in a decrease in general consumption (people have less money to spend as they are searching for jobs) and this will contribute to slow business growth. Extremely low unemployment rates have proved to be more costly than valuable, because an economy operating at near full employment will cause a rise in prices because of more disposable income among the population.

Some types of unemployment are actually positive for the individual and the economy. Other types are bad for the individual but benefit society. Last, there is one type of unemployment that is both bad for the individual and is costly to society. The three types of unemployment are frictional, structural, and cyclical.

Frictional Unemployment is unemployment that comes from people moving between jobs, careers, and locations." Sources of frictional unemployment include the following:

• People entering the workforce from school.

• People re-entering the workforce after raising children.

• People changing employers due to quitting or being fired (for reasons beyond structural ones).

• People changing careers due to changing interests.

• People moving to a new city (for non-structural reasons) and being unemployed when they arrive.

Structural Unemployment is unemployment that comes from an absence of demand for the workers that are available." There are two major reasons that cause an absence of demand for workers in a particular industry:

• Changes in Technology: As personal computers replaced typewriters, typewriter factories

shut down, leading to workers in typewriter factories losing their jobs.

• Changes in Tastes: If bagpipes become unpopular, bagpipe companies will go bankrupt and their workers will be unemployed.

Seasonal unemployment is unemployment due to changes in the season - such as a lack of demand for department store Santa Clauses in January. Seasonal unemployment is a form of structural unemployment, as the structure of the economy changes from month to month.

Cyclical Unemployment occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high. Getting laid off due to a recession is the classic case of cyclical unemployment.

The stability of the economy rests on the ability to maintain a low unemployment rate and provide a safe, secure workplace. Employees benefit from an enjoyable workplace, and in turn businesses save money. When a solid relationship exists between the individual and her working environment, society benefits overall as well.

Answer the following questions:

1. What is the labour market and when is it considered to be healthy?

2. When is the labour market called “flexible”?

3. What does the rate of unemployment measure and what essential information can it give?

4. Can an economy have a zero percent unemployment? Why/ why not?

5. What do high levels of unemployment result in?

6. What impact can operating at near full employment have on the economy?

7. What is the natural rate of unemployment?

8. What are the three types of unemployment?

9. What are the reasons for the different types of unemployment?

10. Is unemployment always a negative phenomenon?