4.2.3.2 Employment and unemployment

Question 1

Definition of unemployment

Answer 1

When someone is of working age and is willing and able work, but cannot find a job .

Question 2

Unemployment rate

Answer 2

the percentage of the labor force that is unemployed

Question 3

Frictional unemployment

Answer 3

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

Question 4

What is real wage unemployment? (classical unemployment)

Answer 4

• when real wages for a job are set above the market-clearing level, causing the number of job seekers to exceed the number of vacancies.
• It might be caused by trade unions or the minimum wage.

Question 5

What is seasonal unemployment?

Answer 5

• State of being out of work because of the time of year e.g. ice-cream sellers or ski instructors

Question 6

What is cyclical unemployment?

Answer 6

unemployment that rises during economic downturns/ recessions (i.e falling AD)

Question 7

What is structural unemployment?

Answer 7

• unemployment that occurs when workers’ skills do not match the jobs that are available e.g. coal miners are made redundant when the demand for coal falls.
• This type of unemployment is often regional and long term.

Question 8

What is the natural rate of unemployment?

Answer 8

• equals the sum of frictional and structural unemployment but NOT cyclical unemployment.
• Occurs when the labour market is in equilibrium.
• The monetarists believe the economy will always return to the natural rate of unemployment in the long run. n.

Question 9

factors affecting the natural rate of unemployment

Answer 9

• Availability of job information. A factor in determining frictional unemployment
• Skills and Education. The quality of education and retraining schemes will influence the level of occupational mobilities.
• Degree of labour mobility
• Flexibility of the labour market E.g. powerful trades unions may be able to restrict the supply of labour to certain labour markets
• Hysteresis. A rise in unemployment caused by a recession may cause the natural rate of unemployment to increase. This is because when workers are unemployed for a time period they become deskilled and de-motivated and are less able to get new jobs

Question 10

What is the monetarist view on unemployment?

Answer 10

• Unemployment will always return to the natural rate of unemployment

Question 11

What is the Keynesian view on unemployment?

Answer 11

• The economy may get stuck in recession with high levels of cyclical unemployment because of sticky wages and the paradox of thrift

Question 12

What is the consequence of unemployment for individuals?

Answer 12

• loss of income
• Loss of identity and status
• Loss of skills
• social consequences: divorce, suicide, homelessness etc

Question 13

What are the consequences of unemployment for the economy as a whole?

Answer 13

• Fiscal impact: Higher government spending on benefits and loss of tax revenue.
• Higher government deficits
• Loss of potential output
• Lower living standards

Question 14

A negative output gap and cyclical unemployment

Answer 14

• If output is below full capacity ( a negative output gap) cyclical unemployment occurs.

Question 15

Demand side causes of unemployment

Answer 15

• Falling AD causes cyclical unemployment

Question 16

Supply side causes of unemployment

Answer 16

• Labour immobility may prevent the unemployed finding work.
• High benefits may create a lack of incentives to find work.
• Strong trade unions may force up wage levels causing firms to lay off workers.

Question 17

Policies to reduce unemployment

Answer 17

• Expansionary monetary policy
• Expansionary fiscal policy
• Supply-side policies

Question 18

Expansionary monetary policy

Answer 18

• Refers to monetary policy usually pursued in a recession, involving a decrease in interest rates, intended to increase investment and consumption spending.

Question 19

Expansionary fiscal policy

Answer 19

combats a recession by either lowering taxes or increasing government spending

Question 20

Supply side policies

Answer 20

• A range of policies aimed at increasing LRAS e.g. lower benefits, vocational educational and training, legislation to reduce trade union power. These policieis increase the incentive to work and improve the mobility of labour.
• They help reduce frictional and structural unemployment and reduce the natural rate.

Question 21

What is Hysteris?

Answer 21

Unemployment causing unemployment. It refers to the damage that unemployment does to the skills and employability of the people out of work.

Question 22

Voluntary unemployment

Answer 22

Workers who are not prepared to take a job at current wage levels

Question 23

Involuntary unemployment

Answer 23

Workers who are willing to work but cannot find employment.

Question 24

Labour force survey

Answer 24

a survey of a sample of households, counting people as unemployed if they are actively seeking work but do not have a job (in the week of the survey).

Question 25

Claimant count

Answer 25

Those people claiming jobseeker’s allowance