Government objectives regarding full employment

Governments set full employment as a key economic goal. This means that all individuals of working age who are able and willing to work can secure a job at prevailing wage levels, excluding groups such as students or retirees.

Full employment

Full employment does not imply that every person has a job, as there will always be some individuals transitioning between roles. Achieving full employment maximises an economy's output, which boosts living standards by ensuring resources are used efficiently. In contrast, high unemployment results in an economy functioning below its potential capacity.

Full employment on the production possibility frontier

The production possibility frontier (PPF) illustrates an economy's maximum output using available resources. Operating at a point on the PPF curve represents full employment and full capacity utilisation. Points inside the curve indicate under-utilisation of resources, including labour.

Under-employment

Under-employment happens when workers are employed but their roles do not fully use their skills, experience, or available time. This leads to inefficiency, even if unemployment rates appear low.

Examples of under-employment:

• A qualified engineer taking a job as a shop assistant, where their expertise is not applied.
• An individual working part-time hours despite wanting and being available for full-time work.

Economic factors influencing unemployment

Unemployment levels are closely tied to overall economic conditions, particularly the demand for goods and services. Since labour demand is derived from consumer demand, shifts in economic activity directly affect employment.

Cyclical unemployment

Cyclical unemployment, also known as demand-deficient unemployment, arises during recessions when aggregate demand decreases. This leads to reduced production and job losses across various sectors. Economies facing a negative output gap—where actual output is below potential—are prone to this type of unemployment, as businesses cut back on hiring or make redundancies.

Seasonal unemployment

Seasonal unemployment results from predictable fluctuations in labour demand throughout the year, affecting only certain sectors.

Industries commonly affected by seasonal unemployment:

• Hospitality, where more staff are needed during peak tourist seasons.
• Agriculture, with higher demand for workers during harvest periods.
• Retail, which sees increased employment during busy holiday shopping times.

Unlike cyclical unemployment, seasonal patterns are regular and do not impact the entire economy.

Structural unemployment and labour immobility

Structural unemployment emerges when there is a mismatch between available jobs and workers' skills or locations, often due to long-term changes in the economy. This can worsen regional economic decline and create broader effects.

Causes of structural unemployment

Structural shifts occur when industries or occupations decline because of evolving consumer tastes, technological progress, or competition from lower-cost options. Areas reliant on traditional manufacturing are particularly vulnerable.

Factors increasing the likelihood of structural unemployment:

• Rapid technological advancements that automate jobs.
• Quick collapse of outdated sectors, reducing workforce needs.
• Shifts in consumer behaviour towards better-informed choices, such as preferring affordable or superior-quality goods.

Labour immobility

Labour immobility exacerbates structural unemployment by preventing workers from adapting to new opportunities:

• Occupational immobility - Workers may lack the necessary skills or training for emerging jobs in growing sectors.
• Geographical immobility - Barriers to relocation include high housing prices in job-rich areas, relocation expenses, or personal ties like family responsibilities.

Economic impacts of structural unemployment

Structural unemployment can trigger a negative multiplier effect, where job losses reduce local spending, leading to further business closures and unemployment.

Frictional unemployment

Frictional unemployment refers to the short-term joblessness experienced by individuals moving between jobs. It is a natural part of a dynamic labour market and persists even in economies at full employment.

Reasons for frictional unemployment

This type of unemployment arises as workers leave positions—due to contract endings, pursuit of better pay, or other career moves—and search for new opportunities.

Factors affecting the duration of frictional unemployment

• Economic conditions - Periods of growth shorten frictional spells due to abundant vacancies, while downturns extend them amid job scarcity.
• Welfare benefits - Generous support might encourage workers to take longer in their job search or be more choosy about roles.
• Quality of job information - Limited access to details about openings can prolong unemployment by delaying suitable matches.
• Labour immobility - Both occupational (skill gaps) and geographical (relocation barriers) issues can extend the time needed to secure new employment.