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A Level Economics (AQA) > 4.11.2 - Employment and Unemployment > Flashcards

4.11.2 - Employment and Unemployment Flashcards

1
Q

What is involuntary unemployment?

A

When workers are willing to work at current market wage rates but there are no jobs available.

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2
Q

What is voluntary unemployment?

A

When workers choose to remain unemployed and refuse job offers are current market wages.

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3
Q

What was Keynes’ argument for the causes of involuntary unemployment?

A

When there is deficient AD.

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4
Q

Why does deficient AD cause involuntary unemployment?

A

As there is no demand for their labour in the economy, they are not hired.

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5
Q

What are the four types of unemployment?

A
  • Frictional
  • Structural
  • Cyclical
  • Seasonal
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6
Q

What is frictional unemployment?

A

Unemployment that occurs in the short term when a worker switches between jobs.

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7
Q

What is the assumption within frictional unemployment?

A

That there is a job vacancy available and that friction in the job market, caused by the immobility of labour, prevents an unemployed worker from filling the vacancy.

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8
Q

What happens if frictional unemployment occurs in the long-term?

A

It becomes structural unemployment.

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9
Q

What are the main causes of frictional unemployment?

A
  • Geographical immobility of labour
  • Occupational immobility of labour
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10
Q

What is the geographical immobility of labour caused by?

A

Family ties, friends in the area etc. that discourage people to move to other parts of the country.

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11
Q

What is the occupational immobility of labour caused by?

A
  • Difficulties in training for jobs that require different skills
  • Gender / age discrimination
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12
Q

Why may redundant workers be frictionally unemployed?

A

As they look for new jobs at a wage rate they are willing to accept, they are frictionally unemployed.

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13
Q

Why may university graduates be frictionally unemployed?

A

As they join the labour market, they will look for a job at a wage rate they are willing to accept.

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14
Q

How is frictional unemployment exacerbated?

A
  • The imperfect information in the labour market
  • Incentive problems
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15
Q

How does imperfect labour market information exacerbate frictional unemployment?

A

The jobless are unaware of jobs available at wage rates they are willing to accept.

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16
Q

How do incentive problems exacerbate frictional unemployment?

A

People (particularly on higher wages) may not re-enter the work place over fears their pay will be swallowed up in taxes.

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17
Q

What is the search theory of unemployment?

A

The idea that frictional unemployment can be viewed as a voluntary search period where newly unemployed workers scan the labour market, searching for vacancies which meet their aspirations.

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18
Q

How does the search theory of employment state that frictional unemployment ends?

A
  • The worker finds a job that has existed since their unemployment for which they are qualified and which meets their aspirations.
  • The worker finds a job vacancy that is new for which they are qualified and meets their aspirations.
  • The worker does not find a job vacancy at their aspirations and takes a job below their aspirations.
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19
Q

How is the length of search periods for employment increased?

A

Through benefits.

The benefits system reduces the amount an individual will run down their stocks of saving while they look for a new job. If the benefits system did not exist, the time for frictional unemployment might fall.

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20
Q

Why do many free-marketeers support reduced unemployment benefits?

A

Removing the unemployment benefits will reduce the time of voluntary search periods, in an effort to reduce the time of frictional unemployment.

Free-marketeers believe welfare policies create incentives for the unemployed to remain in the voluntary unemployment periods for longer. If these policies are changed, the levels of frictional unemployment in the economy would fall.

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21
Q

What is structural unemployment?

A

Structural unemployment is a longer-lasting form of unemployment caused by fundamental shifts in an economy and exacerbated by extraneous factors such as technology, competition, and government policy.

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22
Q

What are the causes of structural unemployment?

A
  • Technological advancements
  • Fundamental changes in consumer preferences
  • Globalization and competition
  • Education and skill mismatches
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23
Q

What is the cause of technological unemployment?

A

The successful growth of new industries using labour-saving technology.

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24
Q

What is the difference between mechanisation and automation?

A

Mechanisation usually increases the overall demand for labour as more workers are required to work machines.

Automation usually reduces the overall demand for labour as machines operate other machines.

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25
Q

How can changes in technology lead to changes in demand?

A

If structural unemployment has forced a good to be replaced by a substitute good, demand will shift to the substitute.

In some countries with hot climates, solar panels have been replacing coal as the main source of energy, which leads to structural unemployment when fossil-fuel burning power stations close down.

26
Q

Why has structural unemployment been growing in the service sector?

A

Information and Communication Technology and automated services have replaced UK call centre employment to a certain extent.

Most call centres have been offshored to lower-waged countries like India.

27
Q

Why was there regional structural unemployment in the post-WW2 era?

A

Structural unemployment was concentrated regionally, with ‘sunset industries’ like textiles and shipbuilding being offshored to lower-wage countries. This structural unemployment was offset by the ‘sunrise industries’ in other areas though.

28
Q

Why was there national structural unemployment after the end of the post-war consensus?

A

There were severe recessions in the 1980s, 1990s and in the ‘08 recession which led to structural unemployment in almost all regions of the UK as deindustrialisation spread across the manufacturing base.

This structural unemployment in the manufacturing base also damaged other industries which serviced the manufacturing sector, e.g. private security firms.

29
Q

What is cyclical unemployment?

A

Unemployment caused by a lack of AD in the economy.

30
Q

Why did Keynes not think that the unemployed should be blamed for their idleness?

A

Cyclical unemployment (which he was the proponent of) was involuntary, so it was not the unemployed’s fault.

31
Q

What was Keynes’ analysis of this graph?

A

A collapse in business and consumer confidence causes consumer confidence to fall from AD1 to AD2. If prices and wages are ‘sticky’,the price level will not fall in the economy, so deficient AD and cyclical unemployment will persist with the equilibrium level of national income falling from YN to Y2.

32
Q

What is the free-market analysis of this graph?

A

Markets for goods and labour are competitive; by reducing businesses’ costs of production, falling wages shift the SRAS curve from SRAS1 to SRAS 2.

As a result, the price falls to P2 and output increases to Y2 to the normal capacity level of output YN.

Cyclical unemployment is temporary and self-correcting, provided that markets are competitive and prices/wages are flexible.

33
Q

What is Say’s law?

A

Supply creates its own demand.

When an output is produced, factor incomes such as wages and profits are generated that are just sufficient, if spent, to purchase the output at the existing price level, thereby creating demand for the output produced.

34
Q

Why is Say’s Law controversial?

A

Whether or not potential incomes generated are actually spent on output produced.

Pre-Keynesians believe that if households save more than firms want, rates of interest will fall to be equal to investment.
Keynesians believe that in recessionary periods, savings will exceed investment and there will be excess savings.

35
Q

What is seasonal unemployment?

A

Unemployment arising in different seasons of the year, caused by factors such as the weather and the Christmas period.

36
Q

What industries tend to see seasonal unemployment?

A
  • Tourism
  • Agriculture
  • Catering
  • Building
37
Q

What did Beveridge define full employment as?

A

‘Having more vacant jobs than unemployed men, not slightly fewer jobs. It means that the jobs are at fair wages, of such a kind, and so located that the unemployed men can reasonably be expected to take them; it means, by consequence, that the normal lag between losing one job and finding another will be very short.’

38
Q

What types of unemployment are caused by a lack of AD in the economy?

A
  • Cyclical
  • Seasonal
39
Q

What types of unemployment are caused by a lack of AS in the economy?

A
  • Frictional
  • Structural
40
Q

How can frictional and structural unemployment be solved?

A

Using supply-side policies to stimulate AS in the economy.

41
Q

How can cyclical and seasonal unemployment be solved?

A

Using demand-side policies to stimulate AD in the economy.

42
Q

What are real wages?

A

The purchasing power of the nominal wage.

43
Q

What is real-wage unemployment?

A

Unemployment caused by real wages being stuck above the equilibrium market-clearing real wage.

44
Q

What did free-marketeers blame unemployment on in 1920s Britain?

A
  • Decline of nineteenth century industries
  • Overvalued exchange rate

Mostly blamed on excessively high real wages.

45
Q

What did free-market economists blame real wage unemployment of the 1920s on?

A

Trade unions, who prevented the market mechanism from working properly.

46
Q

What did keynesian economists blame real wage unemployment of the 1920s on?

A

Involuntary unemployment, caused by wage stickiness or wage inflexibility over which workers have no control.

47
Q

What is equilibrium unemployment?

A

The economy’s aggregate labour market is in equilibrium. The same as the natural level of unemployment.

48
Q

What is the natural rate of unemployment?

A

The rate of unemployment when the labour market is at equilibrium.

49
Q

How is equilibrium unemployment made up?

A

Taking into account frictional and structural unemployment.

50
Q

What are the consequences of unemployment for the economy?

A

Not all of the factors of production are being used, so the economy operates within it’s PPF and fails to operate to potential.

The international competitiveness of the economy will fall.
Reduction in incentive to invest due to higher business taxes to pay for benefits.

Inflation may fall due to the Phillips curve due to downward pressure on wage rates.

51
Q

What are the consequences of unemployment for individuals?

A

Those who are unemployed will lead to low standards of living.

52
Q

What government policies can reduce unemployment?

A
  • Improving the geographical mobility of labour
  • Improving occupational mobility of labour
  • Reducing employment search periods
  • Supply-side policies
53
Q

How can improving the geographical mobility of labour reduce unemployment?

A

It targets frictional unemployment.

Makes it easier for families to move from one region to another. There is a widening regional difference in geographical mobility of labour.

54
Q

How can improving the occupational mobility of labour reduce unemployment?

A

Targets structural unemployment.

55
Q

How is the occupational mobility of labour targeted?

A
  • By providing retraining schemes
  • Introducing laws to ban professional and trade union restrictive practices
56
Q

How does reducing employment search periods reduce unemployment?

A

By targeting frictional unemployment.

57
Q

How has the government tried to reduce employment search periods?

A

Introducing the jobseeker’s allowance (JSA)

58
Q

What are the two types of jobseeker’s allowance?

A
  • Contribution based
  • Income based (currently being merged to universal benefit)
59
Q

How does the contribution based JSA work?

A

Provided you have paid NI contributions, the contribution based allowance can be claimed for the first few months of unemployment, provided the claimant is actively seeking work.

It creates an incentive for the newly unemployed to meet lower wage rates and speed up the search for vacancies.

60
Q

How do supply-side policies reduce unemployment?

A

By reducing frictional and structural unemployment.

A Level Economics (AQA) (81 decks)

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