39) Employment and unemployment

Question 1

What is the labour force?

Answer 1

Employed + Unemployed

Question 2

Who are economically inactive people?

Answer 2

People of working age (16-65) who are not employed or seeking employment (e.g. students, early retirees, medically retired, house wives)

Question 3

What is underemployment?

Answer 3

When a worker does not have as much work as they would like, but they are not unemployed OR when a worker has a full-time job, but is massively underutilizing their skills

Question 4

What is the unemployment rate formula?

Answer 4

Unemployed who are actively seeking work / Labour force

Question 5

What are the 5 types of unemployment?

Answer 5

• Frictional unemployment
• Seasonal unemployment
• Structural unemployment
• Cyclical (demand deficient) unemployment
• Classical (real wage) unemployment

Question 6

What is frictional unemployent?

Answer 6

Unemployment that occurs from the inevitable time delays in finding new employment in a free market

Question 7

What is seasonal unemployment?

Answer 7

Unemployment that occurs when people are unemployed at particular times of the year when demand for labour is lower than usual. e.g. a ski resort

Question 8

What is structural unemployment?

Answer 8

Unemployment that is caused by a mismatch of skills between the unemployed and available jobs

Question 9

What is cyclical (demand-deficient) unemployment?

Answer 9

Unemployment due to a period of negative economic growth, or economic slowdown.

Question 10

What is classical (real-wage) unemployment?

Answer 10

Unemployment that occurs when real wages are kept above the market-clearing wage rate, leading to a surplus of labour supplied

Question 11

How can unemployment be shown?

Answer 11

• Using a PPF
• Business cycle diagram
• Using ASAD

Question 12

What are the benefits of net immigration?

Answer 12

• Increased GDP
• Immediate increase in economically active population
• Immigrants can be motivated and highly productive
• “More people creates more jobs”

Question 13

What are potential costs of net immigration?

Answer 13

• Pressure on infrastructure
• Social cohesion issues
• Depressing of wage rates in some labour markets

Question 14

What are the costs of unemployment to the unemployed?

Answer 14

• Loss of income
• Stigma of “failure”
• Medical illness
• Increased suicide risk
• Reduced human capital
• Considered poorly by potential employers

Question 15

What are the costs of unemployment to the local community?

Answer 15

• Increased crime and anti-social behavior
• Increased social care costs

Question 16

What are the costs of unemployment to the government?

Answer 16

• Increased benefit payments
• Reduced tax revenue
• Increased gov spending on skills programmes
• Increased costs to the NHS

Question 17

What are the costs of unemployment to the wider society?

Answer 17

• Reduced GDP
• Increased social issues
• Profits fall

Question 18

What are the solutions to unemployment?

Answer 18

• Demand side policies to reduce demand-deficient unemployment (e.g. monetary or fiscal policy)
• Supply side policies to reduce structural unemployment (e.g. remove labour market regulations, education, lower NMW)