43 Employment and Unemployment

Question 1

Define full employment

Answer 1

The level of employment corresponding to where all who wish to work have found jobs, excluding frictional unemployment

Question 2

Define Equilibrium unemployment

Answer 2

UNemployment when labour market is in equilibrium. (AS=AD)
Includes voluntary, structural, frictional unemployment.

Question 3

Define Disequilibrium unemployment

Answer 3

UNemployment when AS labour > AD labour at current wage rate
includes cyclical unemployment

Question 4

Define Aggregate Labour Force

Answer 4

Those part of labour force who are not willing and able to work at equilibrium wage rate (due to
-seek better pay
-lack information about job vacancy
-no skills/ qualifications
-immobility

Question 5

Describe what happens to ALF when wage rate increase

Answer 5

ALF decreases (moves closer to ASL) because higher proportion are willing to accept wage rate.

Question 6

State causes of diseq unemployment

Answer 6

ASL > ADL
-ADL decreases but wage rate remains
-trade union
-minimum wage

Question 7

Explain cyclical unemployment

Answer 7

ADL decrease due to AD decrease
(esp during recession)

Question 8

Explain structural unemployment

Answer 8

Immobility
-occupational (lack of skill)
-geographical

Question 9

Explain frictional unemployment

Answer 9

Workers in between job
(eg graduates looking for new jobs)

Question 10

Classify voluntary and involuntary unemployment

Answer 10

Voluntary (unwilling to work at W)
-frictional
Involuntary (willing to work at W but cannot find job)
-structural
-cyclical

Question 11

Why is it difficult to identify voluntary or involuntary unemployment?

Answer 11

1. Those receiving unemployment benefits do not admit they could get a job
2. A scientist who just lost the job is not classified unemployed if a job as street cleaner is available

Question 12

Define Natural Rate of Unemployment

Answer 12

Rate of unemployment when ADL = ASL at current wage rate and price level
(LR, consistent with NAIRU)

Question 13

Explain NRU

Answer 13

In SR, increasing AD with increase ADL, thus push wage rate higher, ALF move closer to ASL. Unemployment rate decreases.
However in LR, higher wage rate increase COP, firms lay off workers to maintain profit margin, unemployment rate increases back.

Question 14

Why don’t fiscal and monetary policy work with reducing NRU?

Answer 14

NRU in the LR does not depend on demand, rather it depends more on supply side

Question 15

Methods of reducing NRU with supply side policy

Answer 15

1. cut unemployment benefit and tax rate to encourage work incentive
2. removing minimum wage to reduce cop
3. improve education and training
4. increase quantity and quality of information
5. Increase labour mobility

Question 16

Elaborate on how providing education and training reduces NRU

Answer 16

Training prevent hysteresis ( workers become deskilled and demotivated when out of work for a long time)

Question 17

Examples of high unemployment

Answer 17

• declining industries
• countries with weaker transport link and infrastructure
• young workers need training
• discrimination for women, people with impairments, ethnic minorities

Question 18

Patterns and trends in employment

Answer 18

• 1,2,3 sectors in developed/ developing countries
• women proportion increasing
• self employed increasing
• part time job offered
• gig economy
• private and public sector

Question 19

Define occupational mobility

Answer 19

Ability to move from 1 occupation to another

Question 20

Factors affecting occupational mobility

Answer 20

• quality of education/ training
• barriers to entry and exit ( long term contracts, trade unions restrict supply of certain occupation)
• time period
• information

Question 21

Define geographical mobility

Answer 21

Ability to move to a job in different location

Question 22

Factors affect geographical mobility

Answer 22

• personal ties (family, friends)
• information availability (working conditions, pay)
• immigration control (work visa)
• language barriers
• cultural difference