Unemployment and Employment Concepts

Full Employment, Unemployment, and Related Concepts

• Full employment: A state where all willing workers can find jobs at prevailing wages. An unemployment rate of 4% typically indicates full employment. Zero unemployment is unrealistic due to frictional and structural unemployment.
• Employment: Being actively involved in paid work.
• Unemployment: Lack of work, availability for work, and active job seeking.
• Workforce: All employed individuals.
• Labor force: All those available for work and actively seeking or currently engaged in work (employed and unemployed).
• Unemployment rate: Percentage of the labor force who are unemployed.
• Underemployment: A situation where a worker's skills or time are not fully utilized, e.g., a highly skilled individual working in a less skilled role.

Measuring Unemployment

• Live Register: A measure of people receiving unemployment benefits (like jobseeker's allowance). Not the most accurate measure due to part-time employment, hidden economy participation, and potentially 'voluntary' unemployment.
• Labour Force Survey (LFS): Introduced in 2017, replacing the Quarterly National Household Survey. It's considered a more accurate measure using a 32,500 household sample each quarter. A time lag exists between the survey period and results publication.

Causes of Unemployment (Types)

• Structural unemployment: A mismatch between available jobs and worker skills. Often results from technological advancements, e.g., self-service tills replacing checkout operators. Retraining programs can mitigate this type.
• Frictional unemployment: Occurs when workers transition between jobs, leave current jobs for new ones, or enter the workforce. It's a natural part of the labor market but can take some time to transition effectively. Little government intervention is required.
• Seasonal unemployment: Workers are unemployed during certain times of year; e.g., tourism industry employees during winter months.
• Cyclical unemployment: Unemployment resulting from reductions in demand for goods/service during a downturn in the economy, e.g. the 2008 financial crisis or the 2020 pandemic.

Factors Affecting Employment

• Increased labor costs: Higher minimum wages reduce the number of workers employers can hire.
• Employer PRSI: Employer contributions for social welfare (PRSI) add to labor costs.
• High interest rates: Increased interest rates, particularly during inflation, can discourage borrowing for investment causing economic slowdown.
• Exchange rate fluctuations: Changes in the Euro's value impact export costs, and tourism, potentially causing unemployment.
• Uncertainty: Economic downturns or crises create pessimism influencing investment and consumer spending.
• Multinational relocation: Businesses relocating due to factors like lower labor costs or government incentives impact local employment.

Ireland's Employment and Unemployment (1990s-2021)

• Mid-1990s-2007: Declining unemployment and increasing employment due to attracting FDI (partly aided by low wages, tax incentives, and highly-educated workforce). Construction boom concealed job losses in other sectors.
• 2008-2013: The 2008 financial crisis led to a severe drop in credit access, plunging property prices and construction, resulting in high unemployment and increased emigration. Government implemented austerity measures.
• 2013-2020: Economic recovery with continued FDI. Tourism sector growth contributed and construction and other sectors began recovering.
• 2020-2021: COVID-19 lockdowns caused a significant increase in unemployment, particularly in certain sectors.

Implications of Unemployment

• Reduced consumer spending: Fewer jobs and earning potential reduce household spending.
• Decline in investment: Lackluster demand and pessimism discourages corporate investment.
• Increased social welfare costs: More people require unemployment support, and other social welfare needs (health, housing).
• Decreased government revenue: Reduced economic activity translates to lower tax revenue.
• Rising budget deficits: Increased spending and reduced revenue result in larger deficits.
• Increased emigration: Motivating individuals to pursue work elsewhere.
• Higher poverty rates: Difficulties in affording necessities due to low income.
• Mortgage repayment issues: Economic downturn led to job losses and difficulties repaying mortgages.
• Growing inequality: Unequal distribution of economic downturn consequences impacting different socioeconomic groups.

Government Measures to Reduce Unemployment

• Reducing VAT for specific industries or services might boost demand; eg., a reduced tourism VAT rate.
• Employer subsidies for hiring new employees.
• Providing or facilitating retraining programs to equip the workforce.
• Boosting tourism.
• Promoting exports.
• Reducing business costs like commercial rates.
• Supporting new businesses to stimulate job creation.