MINIMUM WAGE IN UK

Minimum Wage in UK

Minimum Wage in UK

Measurement and definition

An individual is considered to be unemployed when they are available for work but unable to find employment. In the UK this is generally measured using the claimant count - those people registering to receive state unemployment benefits each week.

In most other countries a labour force survey is used to calculate unemployment. This tracks those people out of employment who have actively searched for work in the previous month. The labour force survey measure is a sample based on face to face surveys across the country.

The reason other countries do not use the claimant count is that it will tend to underestimate the true level of unemployment. This is because not all people who are unemployed are eligible to receive benefit. Therefore, although the official UK unemployment figure is 4%, using the claimant count measure favoured by other countries, this figure rises to 5.8%.

The UK today

Unemployment has fallen steadily since the end of the 1990-92 recession. This has been achieved without a corresponding increase in inflation, thanks to successful supply side policies over the 1990s and effective control of aggregate demand via monetary policy.

Causes of unemployment

Unemployment can be divided into two broad categories, demand side and supply side.

Demand side unemployment is caused by a deficiency in aggregate demand and is generally associated with recessions. This is Cyclical or Keynesian or Demand Deficient unemployment.

If aggregate demand falls sharply, then firms will tend to face falling demand for their products. This will be especially the case in industries such as consumer durables. As a result of falling demand, firms will need to find a way of reducing costs, and may well make some of their workforce redundant. These workers now have reduced incomes, and will consequently consume less, leading to a further fall in aggregate demand. This is likely to trigger a further wave of redundancies and so on. This process is known as a downward multiplier effect:

This type of unemployment occurs primarily during recessions - much of the increase in unemployment between 1990 and 1992 was of this type.

Supply side unemployment comes in three main forms, but all are due to imperfections in the labour market. These types of unemployment will still remain even if there is an increase in aggregate demand, because the employees do not have the right skills and so on for today's job market. Consequently, if most unemployment is supply side, the impact of an increase in AD will be to cause inflation.

Structural unemployment occurs where there is a mismatch between the available jobs and the available skills in the economy. Structural problems occur particularly where there is a downturn in a major sector of industry - skilled employees will be made redundant, but their skills will no longer be appropriate - jobs become available in areas such as IT, in which these employees may be very inexperienced. If there is not access to good training, then these employees may remain unemployed for some time, because ...