2.1.3 Unemployment Flashcards
What is the definition of unemployment?
The unemployed consists of those working age who are willing and able to work actively seeking work, but who do not have a job
What are the two types of unemployment measures?
The labour force survey which is the dominant measure
Claimant count
How does the labour force survey work?
From data collected what can the ONS work out?
Carried out by ONS
Questions are sent to 40,000 households
From data collected ONS can work out
Number of employed people
Number of unemployed people
Number of people economically inactive
All this data can help work out unemployment rate
How to calculate the unemployment rate?
Unemployed divided by economically active which includes both employed plus unemployed times 100
What is the definition of claimant count?
It’s measures the total amount of people claiming unemployment benefits
What are the issues with claimant count?
It’s difficult to compare between countries that don’t have unemployment benefits
Not everyone will claim the benefits and not everyone can claim the benefits if they have expensive assets
Claimant count tends to be lower than labour force survey so it won’t give the correct number of unemployed
Could be subject to fraud
What are the issues with the labour force survey?
Sampling error can occur as only hundred thousand surveyed when there is a larger working population
Disparities and unemployment could be age related gender race regions related
Discouraged workers are left out those being rejected. They are no longer willing to work which means there is hidden unemployment
Inactive groups not included like early retired
The underemployed people were part-time are considered fully employed
What are the two major groups of unemployment?
Disequilibrium unemployment
Equilibrium, unemployment
What are the two types of disequilibrium unemployment?
How do they occur?
Cyclical unemployment, which is demand deficient unemployment
It’s unemployment that occurs during a recession due to lack of A.D.
Real wage unemployment which is classical unemployment it’s when wages are forced above equilibrium in a labour market creating excess supply of labour
Why does cyclical unemployment occur and what does it cause?
Labour is a derived demand as its demand comes from goods and services
If a D is low demand for goods and services are low firms don’t sew enough output prices go down to keep profit margins at a decent level they sack the workforce
Why does real wage unemployment occur and what happens?
Real wage unemployment occurs if government interviewing with higher minimum wage that push wages up
Trade unions can also demand wage increases
It will lead to wages increasing and the supply of label will also increase causing an excess supply
What is equilibrium unemployment and what are the three types?
Equilibrium unemployment is the natural rate of unemployment
The three types include
Structural unemployment
Frictional unemployment
Seasonal unemployment
What is structural unemployment and why might it occur?
What are the two types of immobility
Structural unemployment is the inability of labour due to a long-term change in the structure of an industry
There may be occupational mobility of labour where there is a skills mismatch that the workers have but the job has different skills
There may be a geographical inability of labour where workers are not willing and able to physically move to a job vacancies exist
What may cause shocks to an industry that causes structural unemployment?
Technology advancements when physical labour is getting automated
Loss of competitive advantage it’s when an industry can produce a good service at a lower cost than other countries and industries advantage may be lost to foreign country
Modernisation or new industry growth
Regional unemployment with certain areas of a country suffer from very low levels of employment due to industry closures
What is the natural rate of unemployment?
What does it consist of?
It’s unemployment that occurs when the labour market is an equilibrium
It’s consists of structural frictional and seasonal unemployment
Why does natural rate occur?
What is macro objective?
Natural rate occurs at 0% unemployment can never be achieved in an economy
Micro objective is to achieve full employment, which is the natural rate
How can Natural rate employment be explained by?
It could be explained by those who are structurally unemployed frictional, unemployed and seasonal unemployed
What is the definition of frictional unemployment?
It’s when people think that they may get an even better job opportunity in a few days thus extending their search time
What is the definition of seasonal unemployment?
It could be jobs available in off-season, but some rejected
What are the determinants of natural rates for free market determinants?
Free market determinant blame government intervention
Generous benefit system could lead to structural unemployment
Excessive labour market regulation can be a big Driver of Natural rate of unemployment as they could be strict hiring and firing regulations so firms are not willing to take risks hiring low skilled workers which drives structural unemployment
What are the determinants of natural rates when it comes to interventionist determinants?
They would blame market failure and they want more government intervention
There is a lack of transport and housing infrastructure does not enough supply of these goods. This could help solve structural and frictonal unemployment.
Lack of in work training without their structural unemployment will increase
What are the impacts of unemployment on work?
Lots of income which she said the client of living standards
May be a long time unemployed As its difficult to find jobs as they lose skills known as hysteresis
Stigma of being unemployed by receiving benefits they may take time to find suitable jobs
What is the impact of unemployment on firms?
Demand tends to decrease for their goods and services depends on YED and profits decrease
If there is Long-term unemployment leads the loss of skills and there’s a smaller pool of skilled people to employ
May be greater pool of workers for firms as they can choose most productive workers reducing their COP and increasing profit margins
What is an impact of unemployment on consumers?
Firms may lower prices on goods and services to drive up to demand
Unemployed consumers, lose out as they have less to spend
What is the impact of unemployment on government?
Deterioration of government finances as their lower tax revenues income tax revenues that come down at VAT revenue is also come down due to less spending on goods of services less corporation tax revenue
Governments will spend more on benefits and welfare payments which cause an opportunity cost as money could be used elsewhere
Increase budget deficit as government raises taxes or scaleback plans on public spending on public And merit goods
More borrowing to fund spending which increases debt
Improved current account position as more people unemployed less sucking in of imports
What are the costs of unemployment? Remember the costs outweigh the benefits
The costs include
Loss output as economy is not producing a potential due to lack of labour consumers can access goods and their is constraint of economic growth
Deterioration of government finances as they will receive low tax revenues from income corporation and VAT
Social costs that can be greater homelessness, greater deprivation crime rates high of mental health and protests increased
What are the benefits of unemployment?
Greater pool of workers for firms they can choose the most productive workers
The inflation will occur with abundant labour workers. They don’t have huge wage, bargaining power and prices decrease
Improved current account position as more people unemployed less sucking in imports
What are some evaluative points on costs and benefits of unemployment?
The rate typically natural rates for unemployment is normal
The duration of unemployment long-term is very bad
The type of unemployment Structural unemployment much worse
The distribution of unemployment within youth unemployment is very bad
