11.2 Employment And Unemployment Flashcards
What is full employment?
Number of people willing to work at the going market real-wage=number of workers who’s employers wish to hire at the real-wage rate
What type of unemployment does a dynamic and changing economy lead to
-frictional
-structural
What is involuntary unemployment?
Occurs when workers are willing to work at current market wage retest but there are no jobs available
What did Keynes say causes involuntary unemployment
Deficient AD in the economy
What is voluntary unemployment?
Occurs when workers choose to remain unemployed and refuse job offers at current market rates
What causes voluntary unemployment?
Workers choosiest to receive state paid benefits than seeking employment
What are the 4 types of unemployment
Seasonal
Frictional
Structural
Cyclical
What is frictional unemployment
(Transitional unemployment)
Unemployment that is short term and occurs when a worker swot he’s between jobs
What causes frictional unemployment
Frictions in the labour market which create a time lag when a worker is moving from one Jon to another
If frictional unemployment persists what does it become
Structural unemployment
What are the two causes of frictional unemployment ?
Occupational immobilities of labour
Geographical immobilities of labour
(Prevent laid of workers from willing job vacancies)
What is the geographical immobility of labour caused by?
Factors such as family ties, local friendships discouraging people from moving to other parts of the country (above all cost of moving and difficulties in obtaining housing
What is the occupational immobility of labour caused by?
Difficulties in training for jobs that require different skills
Effect of restrictive practises such as a requirement that new workers must possess unnecessary qualifications and race, gender and age discrimination in labour markets
Who becomes fractionally unemployed
Young people and redundant workers looking for right wage and the right job
What helps explain frictional unemployment
The search theory of unemployment
Describe the search theory of unemployment for a worker on 1k a week
Plenty of low skilled vacancies £300 weekly , will choose to be unemployed until they find a job for 1k a week, they will search for jobs they don’t know about currently
What are they ways a voluntary search period can end?
-find a vacancy for which they are qualified
-initial aspirations unrealistic and look for lower wage (due to threat of poverty)however benefits act as a safety net leading to unemployment
What is structural unemployment?
Long-term unemployment occurring when industries are declining
Occurs within a growing industry if automation reduces demand for labour and when production requires new skills not possessed by the workers
Also associated with the occupational and geographic immobility of labour
What is structural unemployment often referred to as?
Technological unemployment
What caused technological unemployment?
Successful growth of new industries using labour-saving technologies
Changes in technology can lead to changes in demand, why?
In hot countries solar panels are replacing labour intensive coal industries
Does international competition affect structural unemployment and how?
Yes
As imports are cheaper meaning UK Jones are labour
What is deindustrialisation?
Decline of manufacturing industries, together with coal mining
What is cyclical unemployment also known as
Keynesian unemployment or demand-deficient unemployment
What is cyclical unemployment?
Unemployment caused by a lack of AD in the economy occurring when an economy goes into depression or recession
Free market economists generally argue short term cyclical unemployment is caused by?
A lack of demand in the downswing of the economic cycle
(Workers want to work but no jobs available)
Diagram for cyclical unemployment being cussed by a lack of AD
Describe the diagram
-collapse of business and consumer confidence causes a shift from AD1 to AD2
Real national income falls
(Free market economists believe it fixes itself Keynesian doemst)
Diagram for PPF showing cyclical unemployment
What shows the difference between free market and Keynesian views on deficient demand in the economy
Say’s law
What does says law say?
Supply creates its own demand
Whenever supply is produced factor profits such as wages and profits are generated that are just sufficient if spent to purchase the output at the current price level
What is seasonal unemployment?
Unemployment arising in different seasons of the year caused by factors such as the weather and the end of the Christmas shopping period
What are all unemployments caused by?
Demand side or supply side factors
What can supply side policies achieve?
Reduce frictional and structural unemployment
What can demand side policies achieve?
Reduce seasonal unemployment
What are real wages?
Purchasing power of the nominal wage(e.g real wages fall when inflation rate is higher than increase in nominal wage rate)
Real wage rate rise when nominal wage rate>inflation
What is real-wage unemployment?
Unemployment caused by real wage being stuck above the equilibrium market-clearing real wage
Diagram for real wage unemployment
Describe the diagram for real wage unemployment
Full employment at point X,
If wages rise to W1 employers employ E1 leading to a reduction in real wage unemployment from Efe to E1
Excess supply in labour market shown from point Z to point W
What do free market economists argue about real-wage unemployment?
As long as labour markets remain competitive it should be temporary as they will lower the wage rate
What would cause real wage unemployment to be temporary.
Trade unions stop wage rate from falling
Keynesian economists believe real wage unemployment to be?
Involuntary unemployment
Free market economists argue real wage unemployment to be?
Voluntary unemployment on the grounds workers and trade unions accept wage cuts
What is equilibrium unemployment?
When an economy’s aggregate labour market is in equilibrium. It is the same as the natural level of unemployment
What is the natural rate of unemployment
Rate of unemployment when the aggregate labour market is in equilibrium
What makes up equilibrium unemployment
Frictional unemployment
Structural unemployment
Diagram for natural rate of unemployment
Describe the diagram for the natural level of unemployment
Shown by E1 - Efe
X is equilibrium
Z-X is natural unemployment rate
Distance between ASL and ASln shows the amount of frictional and structural unemployment in the economy
Why is unemployment bad for the economy ?
Not all resources used to produce output that could add to improving economic welfare in the economy
Also reduces international competitiveness
How does unemployment lead to an economy’s reduced competitiveness?
High unemployment reduces firms incentives to invest in new technologies that generally lead to increased export competitiveness- also lack of investment in capital technologies (due to cheap available labour)
What can under-investment also be caused by?
Higher business taxes that firms have to pay to help finance welfare benefits paid to unemployed workers
Why are economies particularly affected by long term unemployment?
The longer a worker is unemployed the harder it is to employ them because of the erosion of job skills
Increase in AD leads to inflation not output and more jobs
Why do free market economists believe some unemployment is good for the economy
-provides downward pressure on wage rates, can reduce inflation
-contributes to widening income differentials between better paid and low paid workers -good thing as it promotes incentives -supply side conditions in the economy can prosper
What is the best way to reduce unemployment in the long run
Economic growth
How can govs reduce frictional and structural unemployment?
-improve the geographical mobility of labour
-improve the occupational mobility of labour
-reduce unemployment search periods
-supply side policies
How can govs reduce frictional and structural unemployment?
Improving the geographical mobility of labour
Make it easier for families to move house by subsidising removal costs
-spending on social housing in areas where there are ongoing labour shortages
How can govs reduce frictional and structural unemployment?
Improving occupational mobility of labour
-by providing retraining schemes and introducing laws to ban professional and trade union restrictive practises that make it more difficult for workers to move between jobs
-gov restraining schemes are less effective than those in the private sector
How can govs reduce frictional and structural unemployment?
Supply side policies
Try and improve the competitiveness and efficiency of markets are now used to reduce structural and frictional unemployment
