Unemployment

Theories of unemployment

Frictional, Structural and Cyclical Unemployment

Frictional unemployment occurs when people change jobs — it is a temporary condition.

Structural unemployment occurs when there is a imperfection in the economy causing a long delay in the transfer of resources from one sector of the economy to another. It takes two forms: (1) regional unemployment, when one region is disadvantaged relative to another and either labour must out of the affected region, or capital migrate into it; (2) sectorial unemployment, when one sector of industry is in decline relative to others.

Cyclical unemployment occurs when there are fluctuations in economic activity creating periodic booms and recessions. The trade cycle is said to occur over a four to six year period.

Demand Deficient Unemployment

Keynes claimed that there was demand deficient unemployment, and in this event governments should stimulate demand by increasing government expenditure. This viewpoint dominated government policy in the post-war period, but after the 1970s the Thatcher regime adopted a different view, claiming that government expenditure could cause inflation. They followed the monetarist views of Milton Friedman, who also claimed that every economy also has a natural rate of unemployment. This natural rate arose from the strength of the unions to raise wages above the clearing level of the labour market. In line with this economic thinking the Thatcher government sought to cut government expenditure, for example, by restricting rises in benefits. They aimed to leave market forces to determine the development of the economy.

Critics claim that these policies served to create unemployment, not reduce it. For example, McInnes argues that government “dampened economic activity sufficiently to reduce inflationary pressures, but at the cost of a large drop in output, slower growth and much higher unemployment.” Norman Lamont, chancellor of the exchequer under John Major, said that unemployment was “a price well worth paying” in the battle against inflation.

Deindustrialisation and Structural unemployment

Deindustrialisation is a long-term trend involving a decline in the proportion of the workforce employed in manufacturing industry. It constitutes a restructuring of the economy and gives rise to structural unemployment. The trend in Britain is for fewer people to be employed in manufacturing, whilst employment in the service industries is increasing. Some people claim that this is due to changes in technology, whilst others blame the weakness of the British economy.

The British Marxist historian, E.J. Hobsbawn, claims that Britain's economic decline began in the C19th. Since Britain was the first to industrialize the cost of decommissioning obsolete equipment has placed Britain at a disadvantage relative to other countries. The British bourgeoisie have preferred investments abroad and in trade and finance. He maintains that “Britain .. was becoming a parasitic rather than a competitive economy, living off the remains of world monopoly, the underdeveloped world, and her past accumulations of wealth.”

Marxist theories of unemployment

Marx claimed that unemployment was endemic in the capitalist system. A boom and bust cycle was inherent in the nature of capitalism. Periods of expansion occur when capitalists, who are completing against each other, invest in new machinery. This tightens the labour market, raises costs and cuts profits. In reaction to the loss of profits, capitalists stop investing, with the reverse effects — thus a boom is always followed by a slump.

Behind this there is also the need of capitalists for a reserve army of labour — workers who can be hired during the booms and fired during the slumps. Unemployment is the result of the cyclical operation of a capitalist society. However, Marx thought that this system was not stable, and that a revolution would eventually follow. According to Marx's labour theory of value, the value of a commodity is determined only by the labour involved in making it. As industry becomes increasingly mechanized the exploitation of the workforce increases. The increase in exploitation increases class consciousness, and eventually a revolution will result.

The effects of unemployment

The effects on society

According to Adrian Sinfield, when there is high unemployment (1) the employed feel less secure; (2) workers are less willing to leave unsatisfactory jobs; (3) divisions in society increase; (4) the prospect of equality of opportunity decreases.

Some local areas can develop a culture of despair. Lea and Young argue that this occurred in some inner cities of Britain and helped cause the riots of the 1980s.

Various attempts have been made to link unemployment to many social ills such as ill-health, premature death, attempted and actual suicide, marriage breakdown, child battering, racial conflicts and football hooliganism.

There is evidence to link unemployment to poor health. For example, (1) unemployed school leavers in Leeds had poorer mental health than employed school leavers; (2) in 1971 a study based on the British census found a 20% higher mortality rate among the unemployed than among the employed; (3) a 1982 study of Edinburgh found the suicide and attempted suicide rate of unemployed men was 20 times higher than that of employed men; (4) studies indicate that children of the unemployed are not as tall as those of the employed.

Such studies do not actually show that unemployment causes ill health, but they establish a statistical correlation.

Chas Critcher, Bella Dicks and Dave Waddington in the early 1990s studied the effect of unemployment on two pit villages in Yorkshire using a questionnaire method. In both villages pit closure resulted in significant long-term unemployment, and there were high stress levels throughout the community. Women suffered as much as men; wives of miners had to bear the brunt of family poverty and cope with male despair. There were social and economic problems for the community as a whole, and the fabric of the villages started to decay. Crime increased. Both villages were communities that had experienced total disorientation.

The personal effects of unemployment

Obviously unemployment causes financial difficulty for those affected, especially as unemployment benefits have been declining relative to wages.

According to Fagin and Little employment gives people their sense of identity, especially their social identity. People who work have their time to an extent structured for them; people out of work find it hard to occupy themselves. The structuring of time is also a psychological need, and the unemployed have more restless sleep. Work provides a sense of purpose. Income provides a means of freedom and control outside work.

In a study by Kelvin, Dewberry and Morley, unemployment changes the pattern of leisure. The unemployed watch more television and are less socially active. Their leisure activities tend to become more solitary.

According to Paul Willis when young people are unemployed they are unable to become independent of their parents, and fall into poverty. Leisure has less meaning because it needs to exist alongside work. Young people do not enjoy unemployment. However, they cope with it better than older unemployed people because they have no established occupational identity and some are supported by their families. Unemployment causes boredom. A study by War, Banks and Ullah (1982) claimed that unemployment among the young was linked to psychological distress.

There seems to be little systematic study of the effect of unemployment on women. Women are still stereotyped in terms of their roles as housewives and mothers rather than workers.

Psychological reactions to unemployment

According to Fagin and Little those who become unemployed go through four stages of psychological reaction. (1) A “phase of shock”, in which they experience disbelief and disorientation; (2) a phase of “denial and optimism” in which they think that the unemployment is temporary and they actively seek work; (3) a period of “anxiety and stress”; (4) a period of “resignation and adjustment” in which they finally accept long-term unemployment as a permanent condition.

Long-term unemployed whose incomes remain relatively high are not so likely to become apathetic as those whose incomes are low.