Unemployment is defined as the existence of a section of the labour force able and willing to

work but unable to find gainful employment. The ONS uses the International Labour
Organisation (ILO) definition for unemployment. Under ILO guidelines, anybody who is
aged 16 and over without work, available for work and seeking work is unemployed
(Detini.gov.uk, 2014). The UK unemployment rate was 6.9% for December 2013 to February
2014. The purpose of this essay is to assess why youth unemployment was so high in 2013 and
the eventual consequences for the government. After first reviewing the methods of measuring
unemployment it examines the causes of unemployment. Then the reasons for the sharp rise in
youth unemployment will be provided. Finally the consequences of high youth unemployment
and the policies adopted by the government will be evaluated in order to lead to a conclusion.
There are two different methods of measuring unemployment.
The traditional measure is the claimant count. This includes as unemployed, those who are
eligible to claim the Job Seeker's Allowance (JSA).
The main measure of unemployment in the UK is the International Labour Organisation
count. This is taken from a wider survey of employment called the Labour Force Survey. To be
counted as unemployed, an individual has to be without a paid job, be available to work within a
fortnight and has actively searched for work in the previous four weeks. Of the two measures, the
ILO unemployment is likely to be above the claimant count hence there are various regulations
limiting the availability of the JSA.

Unemployment has a variety of causes which fall into two broad categories: equilibrium
unemployment and disequilibrium unemployment.

The diagram (a) below illustrates the equilibrium unemployment. Equilibrium unemployment
L1L2is the difference between those who would like employment at the current wage and
those willing and able to take a job(Sloman, 2006: 401). The DL curve shows the aggregate
demand for labour. The job acceptance curve (JA) shows the aggregate supply curve of labour
consisting of those who are willing and able to accept a job at a given real wage. The labour
force curve (LF) shows the number of people in work or looking for work at each real wage.
According to Gillespie the level of unemployment at a wage rate of W1 is known as natural
level of unemployment.
The natural rate of unemployment.
(a)
JA=SL

Real Wage

LF

W1

DL

L1

L2

Quantity of labour

There are three types of equilibrium unemployment. One is structural unemployment. This
occurs when the demand for labour is less than its supply in an individual labour market in the

economy (Anderton, 2008: 194). A key factor is immobility of labour, both geographical and
occupational. A particular reason is the fact that youth workers lack the necessary skills or
qualifications and this exacerbates the lack of aggregate demand for them.
A second is frictional unemployment. It occurs as a result of imperfect information in the
labour market. It takes time for workers to find jobs and in the meantime they are unemployed.
This includes young people seeking for their first job.
A third is seasonal unemployment. Sloman (2006: 404) associates it with industries or regions
where the demand for labour is lower at certain times of the year. For example, seasonal
industries such as staffing ski resorts and summer camps for extreme sports create a fluctuation
in youth unemployment.
The diagram (b) below illustrates disequilibrium unemployment. The same notations as in the
diagram (a) are used for curves. Sloman defines disequilibrium unemployment as a result
from real wage rates in the economy being above the equilibrium level.In this case
disequilibrium unemployment is caused by an excess supply of labour of A-B at a wage rate of
W1 (Sloman, 2006). For this to occur, there must be a stickiness in wages, so that the real wage
does not immediately fall to the equilibrium level We (Sloman, 2006).
Disequilibrium unemployment

Average (real) wage rate

(b)

W1

SL

W2
DL

Number of workers
Source:Based on Sloman (2006: 401)

There are two possible causes of disequilibrium unemployment. Firstly, classical

unemployment arises when real wage remains too high for equilibrium .This could also be
caused by the government setting the national minimum wage too high or by trade unions which
drive the wages above the market clearing level.
It can be argued that an important role is played by labour market rigidities and wages being
above the equilibrium rate.
The UK has the special introductory national minimum wage rate of 6.31 for the for 21 and over
years old (Gov.uk, 2014).
Two demand side policies can be introduced which particularly deal with this issue. One is a
funding of wage incentives .The second policy that offers additional incentive payments to
encourage firms to take on 16-24 year old as apprentices (Lee et al., 2014).
Secondly, demand-deficient unemployment is associated with economic recessions. It is
defined as the unemployment caused by a fall in aggregate demand with no corresponding
fall in the real wage rate. It is sometimes referred to as cyclical unemployment because it
fluctuates with the business cycle. This is the biggest cause of unemployment in the UK. The
2008 recession caused unemployment to reach crisis levels.
Unemployment has serious implications for government. Secondly, the mental and physical
health of young people can be adversely affected. The host of issues arising from the problem of
youth unemployment are in turn a burden on the NHS and law enforcement agencies, straining
resources and imposing high costs.Thirdly, unemployment involves a loss of potential national
output because the economy is productively inefficient. In other words, the governments budget
position worsens due to loss of income from taxation and higher spending on benefits. Lastly,
For youth unempoyment the main scarring effects of periods of joblessness are an increased
likelihood of unemployment at a later age.

It has been claimed that Britain's worsening

economic situation is in danger of creating a lost generation of youngsters. To clarify,

hysteresis effect may occur, leading to long-term unemployment (Tutor2u.net, 2011).