2.3 unemployment

Question 1

whats employment

Answer 1

people who are either working for firms or other organisations or self employed

Question 2

define economically inactive

Answer 2

people of working age who arent looking for work for a variety of reasons

Question 3

define discouraged workers

Answer 3

people who have been unable to find employment and who are no longer seeking work

Question 4

define the workforce (labour force)

Answer 4

people who are economically active - either in employment or unemployed

Question 5

define unemployment

Answer 5

those who are jobless, available to work, and actively seeking employment. people who are economically active and not in work. doesn’t include the economically inactive and discouraged workers

Question 6

calculate the unemployment rate

Answer 6

the % of the labour force divided by the unemployed - (the unemployed x 100) / labour force

Question 7

whats the labour force

Answer 7

the employed + the unemployed

Question 8

whats the policy objective of full employment

Answer 8

a situation where people who are economically active in the workforce and are willing to work at going wage rates are able to find employment. good for the economy (maximising production), good for the people with jobs, doesnt mean unemployment will be 0

Question 9

how do we measure unemployment

Answer 9

claimant count, labour force survey (the international labour organisation unemployment rate)

Question 10

what is claimant count

Answer 10

the monthly count of those on unemployment based benefits. mostly job-seekers allowance but also national insurance credits

Question 11

whats the labour force survey

Answer 11

based on ILO’s definition of unemployment, based on a survey of 60,000 households, published every month by the ONS

Question 12

what is the ILO’ definition of unemployment

Answer 12

people who are out of work, want a job, have actively sought work in the last 4 weeks, and are available to start in the next 2 weeks or are waiting to start in the next 2 weeks

Question 13

problems with the CC

Answer 13

not everyone unemployed claims benefits, some will claim the benefit but aren’t prepared to work, some aren’t eligible for the benefits

Question 14

problems with ILO unemployment data

Answer 14

their definition doesnt include those who cant find work at their desired wage/hours, based on sample evidence so there may be a statistical error, doesnt account for those who cant find jobs theyre qualified for

Question 15

name the causes of unemployment

Answer 15

frictional, structural, cyclical, demand-deficient, seasonal, and voluntary unemployment. the wage rate (wage inflexibility)

Question 16

define frictional unemployment

Answer 16

unemployment associated with job search - people who are between jobs

Question 17

define structural unemployment

Answer 17

unemployment that arises bcos of changes to the pattern of an economys economic activity and bcos of the mismatch between the skills of workers leaving contracting sectors and the skills required by expanding sectors in the economy

Question 18

define cyclical unemployment

Answer 18

arises during the downturn of the economic cycle such as a recession

Question 19

define demand deficient unemployment

Answer 19

arises because of a deficiency of ad in the economy so that the equilibrium level of output is below full employment (YFE)

Question 20

define seasonal unemployment

Answer 20

arises in seasons of the year when demand is relatively low e.g tourism industry during non-holiday seasons

Question 21

define voluntary unemployment

Answer 21

when an individual chooses not to accept a job at the going wage rate

Question 22

explain the wage rate cause of unemployment

Answer 22

an argument that if real wages don’t adjust downwards the result would be persistent unemployment

Question 23

define the natural rate of unemployment

Answer 23

when the labour market is in equilibrium. it is unemployment caused by structural factors like mismatched skills

Question 24

what does the NRU include

Answer 24

frictional and structural unemployment

Question 25

define involuntary unemployment

Answer 25

arises when an individual who would like to accept a job at the going wage rate is unable to find employment

Question 26

explain the consequences of unemployment to the unemployed workers/households

Answer 26

less personal wealth, lower standard of living, health issues, marriage problems, lack of sense of purpose/loss of dignity, poverty, forgone earnings and the need to rely on social security support, loss of work experience affecting CVs

Question 27

explain the consequences of unemployment on society/the government/firms

Answer 27

lost output, lost tax revenue, more spending on benefits, pressure on other forms of gov spending (marital breakups, health problems, crime), firms make less profit (negative multiplier effect, other firms suffer)

Question 28

define hysteresis

Answer 28

hysteresis effects happen when a sustained period of low ad can lead to permanent damage to the supply side of the economy

Question 29

name the costs of unemployment on other economies

Answer 29

less exports, increased immigration

Question 30

benefits of unemployment (depends on type and length)

Answer 30

less pressure on wage increases, easier for firms to recruit workers if they are expanding, more time to look for jobs

Question 31

benefits of frictional unemployment

Answer 31

workers can find better jobs, improvement in efficiency of production/productivity

Question 32

evaluation of effects of unemployment

Answer 32

the effects depend on: how much, how long, the type of unemployment (i.e long term structural unemployment is worse than short term cyclical unemployment), the opportunity cost of unemployment benefits. the effects also aren’t spread evenly: young men, ethnic minorities, geographical area, social divisions

Question 33

whats the gig economy

Answer 33

using platforms to get 0-hour contracts. self employed

Question 34

positive effects of YFE (doesnt mean 0 unemployment - occurs when 0 demand deficient or cyclical unemployment - always likely to be some frictional and structural)

Answer 34

achieving potential output, achieving productive efficiency and eg, avoids negative consequences of unemployment, improves business and consumer confidence which will encourage more growth in the long term

Question 35

negative effects of YFE

Answer 35

economy may be vulnerable in the face of increasing ad to increasing prices (demand pull inflation), may cause wage inflation leading to cost push inflation, could lead to a boom in the economic cycle (if growth is above trend rate its unsustainable), encourages immigration

Question 36

evaluation points for the effects of full employment

Answer 36

measured level of employment may not be a true representation of economy’s capacity, definition of full employment is imprecise, full employment can avoid being inflationary if growth is sustainable - depends on skills of the workforce (big labour shortages in skills labour could mean YFE leads to labour shortages),