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A Level Economics > 4.6. Employment and Unemployment > Flashcards

4.6. Employment and Unemployment Flashcards

1
Q

Employment

A

working (includes full-time, part-time, self-employed).

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2
Q

Unemployment

A

not working but actively seeking work.

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3
Q

Unemployment Rate

A

(unemployment / labour force) x 100

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4
Q

Working age population

A

people of legal working age (15-64 OECD measure).

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5
Q

Labour force (workforce, economically active)

A

employment + unemployment.

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6
Q

Participation rate

A

(labour force / working age population) x 100

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7
Q

Economically inactive

A

working age population not employed or unemployed.

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8
Q

Size / composition of the labour force

A

Labour force is affected by:

  • Total size of the population.
  • School leaving age.
  • Higher education participation rate.
  • Retirement age.
  • Cultural attitudes (e.g. female employment).
  • Welfare payments (e.g. unemployment benefits).
  • Birth rate.
  • Cost of childcare.
  • Death rate.
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9
Q

Reasons for Economic Inactivity

A
  • Stay-at-home parent
  • Looking after elderly / sick family members
  • Student at university
  • Long-term sick
  • Disabled
  • Early retirement
  • In prison
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10
Q

Labour Productivity

A

output per worker per time period

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11
Q

Factors affecting labour productivity:

A
  • Education
  • Training
  • Skills
  • Qualifications
  • Experience
  • Technical knowledge
  • Use of capital
  • Working methods
  • Motivation
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12
Q

Production meaning

A

total output from resources

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13
Q

Productivity meaning

A

the efficiency of an input into the production process.

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14
Q

Types of unemployment

A

1) Frictional unemployment
a) Search unemployment
b) Seasonal unemployment
c) Casual unemployment
2) Structural unemployment
a) Technological unemployment
b) Regional unemployment
c) International unemployment
3) Classical (real-wage) unemployment
4) Cyclical (demand-deficient) unemployment

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15
Q

Frictional Unemployment meaning

A

Unemployment that is temporary and arises when people are in between jobs. There are 3 types

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16
Q

Search Unemployment

A

(FRICTIONAL UNEMPLOYMENT)

workers do not accept the first job on offer but spend time looking for a better job

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17
Q

Seasonal Unemployment

A

(FRICTIONAL UNEMPLOYMENT)

workers are only needed at certain times in the year e.g. farming, tourism

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18
Q

Casual Unemployment

A

(FRICTIONAL UNEMPLOYMENT)

out of work between periods of employment e.g. actors.

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19
Q

Frictional Unemployment Evaluation

A

economists are not concerned with this type of unemployment because it will always be present and is a sign of a healthy labour market.

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20
Q

Structural Unemployment meaning

A

Persistent and long-term unemployment caused by a change in the structure of the economy. There are 3 types.

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21
Q

Structural Unemployment Analysis

A
  • Over time as an economy develops it undergoes structural change.
  • Some industries expand (e.g. tertiary) whilst others contract (e.g. primary and secondary).
  • Some workers are unable to transfer between industries due to geographical immobility (unable to relocate) and occupational immobility (lack of skills).
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22
Q

Technological Unemployment

A

(STRUCTURAL UNEMPLOYMENT)

when workers are replaced by labour-saving techniques (e.g. machines).

23
Q

Regional Unemployment

A

(STRUCTURAL UNEMPLOYMENT)

when declining industries are concentrated in a particular area of the country

24
Q

International Unemployment

A

(STRUCTURAL UNEMPLOYMENT)

workers lose their jobs because the industry relocates to cheaper foreign economies

25
Q

Structural Unemployment Evaluation

A

more of a problem in developed economies due to the decline of agriculture and manufacturing in recent decades

26
Q

Classical (real-wage) Unemployment Meaning

A

when the labour market does not clear resulting in an excess supply of labour

27
Q

Classical (real-wage) Unemployment Causes

A

1) National minimum wage
2) Trade union minimum wage
3) Sticky wages (Keynes)

28
Q

Classical (real-wage) Unemployment Diagram (DRAW DIAGRAM)

A
  • y-axis wages
  • x-axis quantity of labour
  • normal AD and AS curves
  • minimum wage set above the equilibrium
  • results in excess supply of labour
29
Q

Cyclical (demand-deficient) Unemployment Meaning

A

Fall in demand for workers due to to a lack of aggregate demand (AD).

30
Q

Cyclical (demand-deficient) Unemployment Analysis

A
  • Downturn / recession.
  • Fall in C & I and therefore AD.
  • Firms reduce production.
  • Output falls.
  • Workers resist wage cuts (sticky wages)
  • Cyclical unemployment.
31
Q

Cyclical (demand-deficient) Unemployment Diagram (DRAW DIAGRAM)

A
  • y-axis wages
  • x-axis quantity of labour
  • normal AD and AS curves
  • AD curve shifts left
  • equilibrium wage level stays the same
  • there is excess supply of labour so there is unemployment (demand-deficient)
32
Q

Involuntary Unemployment

A

workers want to work at the current wage rate but are unable to due to factors beyond their control (e.g. real wage unemployment or cyclical unemployment).

33
Q

Voluntary Unemployment

A

workers choose not to work at current wage rates because they hope to find a better paid job.

34
Q

Involuntary / Voluntary Unemployment Diagram (DRAW DIAGRAM)

A
  • y-axis wages
  • x-axis quantity of labour
  • normal AD and AS curves
  • labour force curve to the right of AS curve (same angle as AS curve)
  • there is a minimum wage set above equilibrium
  • from the AD to AS curve = involuntary unemployment
  • from AS curve to labour force curve = voluntary unemployment
35
Q

Full Employment

A

a situation where everyone that wants a job has a job, excluding frictional unemployed.

  • at maximum employment on LRAS curve
  • at boundary of PPC curve
36
Q

Full Employment Features

A
  • Does not mean 0% unemployment.
  • Likely to occur at around 2-3% unemployment.
  • There will be no demand deficient unemployment.
  • Economy is operating on PPC and where AD = LRAS.
37
Q

Natural Rate of Unemployment

A

the rate of unemployment that persists when the labour market is in equilibrium (when aggregate labour supply equals aggregate labour demand).
- from equilibrium of AS and AD to labour force curve

38
Q

Natural Rate of Unemployment Features

A
  • Unemployment that is left when there is no cyclical unemployment.
  • Consists of frictional and structural unemployment.
  • Caused by supply-side factors.
  • This level of unemployment is consistent with a stable rate of inflation.
39
Q

Factors determining the natural rate of unemployment:

A
  • Availability of job information
  • Level of welfare benefits
  • Skills and education
  • Labour mobility
  • Labour market flexibility
40
Q

Costs of unemployment on Individuals

A
  • Lower income.
  • Lower standard of living.
  • Loss of skills.
  • Harder to find future employment.
  • Poverty.
  • Decline in physical & mental health
41
Q

Benefits of unemployment on Individuals

A
  • Career break / change of job.
  • Further education / training.
  • Go and travel.
  • Time with family.
  • More leisure time.
42
Q

Costs of unemployment on Firms

A
  • Less demand for their G/S.

- Lower revenues and profit.

43
Q

Benefits of unemployment on Firms

A
  • Larger choice of potential workers.

- Existing workers less likely to ask for pay increases.

44
Q

Costs of unemployment on the Economy

A
  • Opportunity cost.
  • Output below potential.
  • Slower economic growth rates.
  • Less consumption / spending.
  • Worsening of government budget due to:
    • Lower government tax revenue (both indirect and direct tax).
    • Higher government spending (job creation, welfare payments).
  • Social problems e.g. crime.
45
Q

Benefits of unemployment on the Economy

A
  • Less demand-pull inflation.

- Less demand for imports improves the current account.

46
Q

Measuring unemployment

A

1) Claimant Count

2) Labour Force Survey (International Labour Organisation)

47
Q

Claimant Count

A

based on those claiming unemployment benefits.

48
Q

Advantages of using Claimant Count

A

+ Cheap and easy to collect.

+ Based on Government data.

49
Q

Disadvantages of using Claimant Count

A
  • Overstates the figure if it includes people not really unemployed (e.g. working and claiming illegally, people not really looking).
  • Understates the figure if it omits people genuinely unemployed (e.g. non-claimants, on government training schemes, above retirement age).
  • Rules for claiming may change over time.
50
Q

Labour Force Survey (International Labour Organisation)

A

based on a survey that identifies people who are actively seeking a job:

  • Not working but willing / able to work.
  • Able to start a job in the next 2 weeks.
51
Q

Advantages of using Labour Force Survey (International Labour Organisation)

A

+ Includes some groups left out of the claimant count.
+ Based on internationally agreed concepts and definitions.
+ International comparisons are easier to make.

52
Q

Disadvantages of using Labour Force Survey (International Labour Organisation)

A
  • More expensive and time-consuming to collect.
  • Based on a sample of households (possible sampling errors).
  • Survey might be incorrectly completed.
53
Q

Unemployment patterns / trends / data

A

As economies develop, comparative advantage changes and workers become more skilled:

  • Proportion employed in the primary sector falls.
  • Proportion employed in the secondary sector initially rises and then falls.
  • Proportion employed in the tertiary sector rises.

A Level Economics (39 decks)

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