3.3 Macroeconomic Objectives — Low Unemplyment Flashcards
Unemployment definition
People who are able to and willing to work who are looking for a job but are not employed
What is underemployment
People of working age with part-time jobs when they would rather work full time, or jobs that do not make full use of their skills or education
What is unemployment rate and formula
The number of people who are unemployed, as a percentage of the total labour force
Difficulties of measuring unemployment
- do not make a distinction between full time and part time employment
- informal market
- unemployment figures include unemployed people who are looking for work
How does unemployment differ within a national population
Geographical Disparities – regions with declining industries may have higher unemployment rates
Age Disparities – Unemployment for younger people is usually higher than the national average
Ethnic Differences – minorities often experience higher unemployment rates – perhaps due to educational or
prejudicial reasons
Gender Disparities – Unemployment amongst women are generally higher than men due to a plethora of
reasons, varying from social prejudices to culture
Costs of unemployment
Economic costs
Personal and social costs
Explain economic costs of unemployment
A loss of real output - reduced labor force, less output
A loss of income
Loss of tax revenue from government - no income, no income tax
Costs to the government unemployment benefits
Larger budget deficit / smaller budget surplus - due to loss of tax revenue and greater expenditure on unemployment benefits
More unequal distribution of income - people become poor while employed maintain income
Personal and social costs of unemployment
Personal problems - loss of income, increase in indebtedness, mental health issues
Greater social problems - higher crime and violence, more homelessness, drug use etc
Types of unemployment
Structural unemployment
Frictional unemployment
Seasonal unemployment
Cyclical unemployment
Explain structural unemployment + graph for it
Occurs as a results of changes in demand for particular types of labour skills, changes in the geographical location of industries and therefore jobs
Explain frictional unemployment
Occurs when workers are between jobs, tends to be short term and does not involve a lack of skills
Explain season unemployment
Occurs when demand for labour in certain industries changes on a seasonal basis e.x farmers
Explain cyclical demand + graph for it
Occurs during the downturns of the business cycle when the economy is in a deflationary gap - low AD
As real GDP falls due to fall in AD, unemployment increases as firms lay off workers
What is natural rate on unemployment
includes unemployment caused by structural, frictional and seasonal factors
Natural Rate of Unemployment= Structural + Frictional + Seasonal Unemploment
