19 - Macroeconomic objectives - low unemployment

Question 1

Employment

Answer 1

Employment refers to the use of factors of production in the production process.

Question 2

Formal sector employment

Answer 2

Formal sector employment refers to officially recorded employment, with workers paying income taxes and contributing to the country’s official GDP.

Question 3

Unemployment

Answer 3

Unemployment refers to people who are able, available and willling to work, but cannot find a job despite an active search for work.

Question 4

Low unemployment as a key macroeconomic objective

Answer 4

• Complements economic growth as higher employment tends to lead to greater national expenditure.
• Increases tax revenue for government
• Reduce the burden on the government as there is less need for taxpayers to fund welfare benefits as more people are in employment
• Prevents a ‘brain drain’ from the economy, whereby skilled workers pursue better employment opportunities in other countries

Question 5

Measurements of unemployment / unemployment rate

Answer 5

Claimant count

The number of people actively seeking work, but officially claiming unemployment-related benefits

Question 6

Unemployment rate

Answer 6

Measures the percentage of the labour force that is unemployed.

unemployment rate = number of unemployed people / labour force x 100

Question 7

Labour force

Answer 7

The number of people of working age who are able, available and willing to work.

Question 8

Criticism of using the claimant count to measure unemployment

Answer 8

Does not reflect the true level of unemployment:
* Some people can’t prove they are actively looking for work, such as parti-time workers.
* Some may make fake claims in order to qualify for welfare benefits

Question 9

Difficulties of measuring unemployment

Answer 9

• Hidden unemployment: Those who are technically unemployed, but are not included in the official measurement of unemployment
• Voluntary unemployment: Economically inactive people who are voluntarily unemployed
• Underemployment: Underemployment refers to the underutilisation of the labour resources in the economy, limiting the economy’s productivity and efficiency
• Disparities: ignores disparities like: Regional disparities, Ethnic disparities, Age disparities, Gender disparities

Question 10

Causes of unemployment

Answer 10

• Cyclical unemployment: Unemployment caused by a fall in aggregate demand. (a.k.a. demand deficient unemployment)
• Structual unemployment: Unemployment caused by fall in demand for labour in a particular industry
• Seasonal unemployment: Unemployment casued by regular and periodical changes in demand for certain goods and services at different times of the year.
• Frictional unemployment: Unemployment caused by transition between jobs due to the time delay

Question 11

Natural unemployment

Answer 11

The level of unemployment when the labour market is in equlibrium (sum of structural, seasonal and frictional unemployment in the economy).

Look at graph if not memorized

NRU occurs where the aggregate supply of labour (ASL) is in balance with the aggregate demand for labour (ADL).
* At the NRU, everyone who wants to work at the prevailing real wage rate has a job, no involuntary unemployment
* Some voluntary unemployment exists at the NRU because various people remain out of a job wihle searching for employment opportunites that offer better real wages or improved terms and conditions of employment.

Question 12

Costs of unemployment

Answer 12

Personal costs:
- Stress
- Low self-esteem
- Poverty
- Family breakdowns

Social costs:
- Crime and anti-social behaviour
- Indebtedness
- Social deprivation

Economic costs:
- Loss of GDP
- Loss of tax revenue
- Increased costs of unemployment benefits
- Greater disparities in the distribution of income and wealth

Question 13

Discouraged workers

Answer 13

People who have stopped looking for jobs as they have become disheartened by constant rejections from employers for a long time.