Inevitably those who are underemployed want to work more hours, usually because they need the higher income.
The rise in underemployment is bad news for those who would like more work and can't get it. They are clearly worse off. For many the data confirms their fears that the true cost of the recession is far higher than the unemployment figures suggest and solves, partly, the puzzle of why unemployment has risen so little in the recession.
For those who advocated the relaxation of labour market rules in the 1980's and 90's the figures will come as a vindication of that supply side policy. Because of the greater flexibility of the market some workers have accepted lower wages and shorter hours rather than becoming unemployed. The pain of the recession is spread more evenly and the economy has not suffered as much disruption as it would have with mass redundancies (which are the alternative to shorter hours).
Some would argue that the unemployment figures are a misrepresentation of the current economic situation, but for most economists it is a welcome sign that the supply side reforms of the Blessed Margaret continue to help the economy.
I think I agree with the majority of economists, as Fiscal policies are best for the short run, shifting Aggregate Demand to the right, but supply side policies are better as they shift AS to the right, and the implications of this are higher incomes, lower unemployment and higher output. This means that the people have higher standards of living. However, (back to the main point) some people who work part-time aren't looking for more hours, such as students, and the media doesn't really focus on this, so the figures may be slightly misrepresentative. For those seeking more hours, the problem probably lies with the firms, who can't afford to pay higher wages for longer hours, so maybe the government should subsidise firms to cover the costs of one of their factors of production: labour.
ReplyDeleteDear Mr Gomez,
ReplyDeleteYou talk about shifting the AS curve to the right and this gives higher incomes and higher output. Well obviously it does but this isn't necessarily the best option. What happens if in the process of shifting the AS curve you actually create deflation by reducing the price level? Considered that? Have you considered the affects on the economy of that? Let me tell you, deflation generally results in AD shifting left as the marginal propensity to consume plummets and the marginal propensity to save rockets. This is because people will be waiting for prices to fall causing a significant reduction in consumption resulting in firms slashing prices further in a bit to entice in more consumers which ends up making the situation worse. Demand is already in a rut at the moment, wouldn't want to make it much worse. Supply side policies take a long time to come into play anyway and pretty much everyone is looking for solutions to the whole crisis now.
I'm not trying to say that supply side policies are bad nor am I trying to reject them in favour of Demand policies, what I am merely saying is that actually for the best results you need both to work together to provide good short and long run growth coupled with low and stable inflation.
Moving back to the main article, and your comment, if the government started subsidising the firms then that is not going to help the budget situation at all. Right now if people are underemployed then it is far better than them not having any work at all, it provides them with experience so that finding a full time job is a lot easier when these employment opportunities open back up. I admit it is not ideal, but in an ideal world things would be far better in the economy than they are at the moment. You have to settle for the best compromise, there will be a trade off one way or another. At least the government will be paying less job seekers allowance as a result of the underemployed having some sort of employment rather than being unemployed.
You mention that the problem lies with the firms; well actually I can inform you that you are most definitely wrong as the problem lies with demand mainly to do with consumer confidence. Consumer confidence is low resulting in less demand which means that firms have less output they need to provide, this means they need to employ less to provide less. The problem is not with the firms but with the economy as a whole. There will be no significant increase in firms recruiting if there is not the demand for their goods and services, ergo the firms cannot be criticised, they are merely reacting accordingly to market conditions.
Yours in economics,
Zakariah Ajjane
Underemployment though an issue has greatly evened the burden of the current economic turmoil; rather than see increases in unemployment understandably workers would rather take a hit on wages and hours. My point though is that the UK's flexible labour market has been highly beneficial in comparison to other systems (such as the French) where firms are discouraged to consider employing more labour with large amounts of red tape and regulation hindering progress; this is currently a massive problem for their economy. These “underemployment” figures are a small price to pay.
ReplyDeleteSean Lintott-White
underemployment may sound awful but come as a blessing in disguise,
ReplyDeleteunderemployment is more often than not included in counts for unemployment by the uks most trustes measure of unemployment the ILO survey, an increase in unemployment would mean that households have less income, consumption being a function of income would decrease shifting aggregate demand to the left causing a deflationary pressure on inflation and lower real national income or GDP this would be of aid to an economy in large deficit as this is a contractionary type of effect and decrease the deficit.
However this may go in the opposite direction and increase in unemployment would mean the government would recieve less in tax revenue and due to automatic stabilizers like benefits for welfare the effect on the aggregate demand curve decreased. In addition this is subject to the multiplier effect and the extent to which it is changed is dependant on the size of the multiplier
Emi Michael.