4.7 - Employment and Unemployment

Question 1

What is Employment?

Answer 1

Being involved in a productive activity for which a payment is received.

Question 2

What is Unemployment?

Answer 2

People able available and willing to find work but not in the employed labour force.

Question 3

What is Economically active?

Answer 3

Those in the labour force market both employed and self employed.

Question 3

What is Economically inactive?

Answer 3

Those not in the labour force eg. retirees students in high education.

Question 4

What is the Labour Market Participation rate?

Answer 4

The proportion of the working age population (15-64) who are in the labour force

Question 5

What is the first way of measuring Unemployment?

Answer 5

An extensive survey is sent to a random sample of ≈ 60,000 households every quarter
Respondents self-determine if they are unemployed based on the ILO criteria
Ready to work within the next two weeks
Have actively looked for work in the past one month

Question 5

What is the Second way of measuring Unemployment?

Answer 5

Counts the number of people claiming unemployment benefits
More stringent requirement to be considered unemployed than with the ILO survey

Question 6

How can structure of the economy change the employment patterns?

Answer 6

As Economies develop over time, they tend to progress through the different sectors (primary, secondary & tertiary) resulting in changes to the employment pattern

Question 7

How can proportion of women employed change the employment patterns?

Answer 7

Changing social attitudes have increased the number of women entering the workforce
The proportion of women in the workforce still varies significantly between different economies

Question 8

How can formal and informal work change the employment patterns?

Answer 8

Workers doing informal work are not included in employment statistics
Informal employment is much higher in less developed economies & tends to decrease as an economy develops

Question 9

How can proportion of workers in the public and private sector change the employment patterns?

Answer 9

With an increase in privatisation & a move towards more market based economies, the percentage of employees in public sector work has decreased in many countries

Question 10

How can part time and full time jobs change the employment patterns?

Answer 10

Working part-time provides more flexibility to workers & in recent years, there has been an increase in the number of part-time workers
In some economies workers may not be able to find full-time work & may be working 2 or 3 part-time jobs to pay the bills

Question 11

How can Woking from home change the employment patterns?

Answer 11

Covid 19 caused many people to think about their pattern of work. Many workers are reluctant to return to a commuting lifestyle & wherever possible, are continuing to work from home

Question 12

How can the unemployment and employment rate increase at the same time?

Answer 12

The employment rate could be increasing even as the unemployment rate is increasing:
May be caused by increased immigration which causes working age population to increase
May be caused as people move from being economically inactive to employed

Question 13

What is seasonal unemployment?

Answer 13

Workers are unemployed due to low demand at a particular time of the year

Question 13

What is frictional unemployment?

Answer 13

Workers who have been fired or voluntarily left one job and may be waiting before finding and starting another

Question 14

What is cyclical unemployment

Answer 14

Unemployment due to a period of negative economic growth or slow down

Question 15

What is structual unemployment?

Answer 15

Unemployment caused by changes in the economy leaving some unable to find work in new industries with different skill requirement

Question 16

Why might cyclical unemployment be higher in one country than another?

Answer 16

A country may be experiencing a recession, which means there is a decreased demand for labour and therefore their cyclical unemployment rate is higher

Question 17

Why might Structual unemployment be higher in one country than another?

Answer 17

One country may have a lower occupational mobility meaning their workers are at a greater risk of being replaced by technological advancements therefore unemployment rate is higher

Question 18

Why might
Frictional unemployment be higher in one country than another?

Answer 18

One country may have a higher welfare payments to the unemployed means more people may chose to be out of work than in, therefore voluntary unemployment rate is higher

Question 19

How does Unemployment effect Firms?

Answer 19

Loss of sales and revenue
Loss of output and productivity
Changes in skill level of the economy

Question 20

How does Unemployment effect the economy?

Answer 20

Increased crime and vandalism
Increased Anti social behaviour
Increase homelessness

Question 20

How does Unemployment effect Individuals?

Answer 20

Loss of income
Loss of skills
Sense of failure
Health issues

Question 21

How does Unemployment effect the government?

Answer 21

Increased spending on retraining
Less tax revenue
Increased spending on benefits

Question 22

How does Expansionary Fiscal Policy reduce Unemployment?

Answer 22

Increase gov spending and lowering taxes. This may include spending on schemes to advertise jobs, or increased the productivity of the workforce which helps improve frictional unemployment

Question 23

How does Expansionary Monetary Policy reduce Unemployment?

Answer 23

Expansionary monetary policy decreasing the interest rate, increasing the money supply and manipulating the exchange rate this creates more demand in the economy cost of borrowing is cheaper consumers purchase more high ticket items firms borrow more to fund investment which increases economic growth and the derived demand for labour. This helps improve cyclical unemployment.

Question 24

How does Supply Side Policeman reduce Unemployment?

Answer 24

Supply side policies like increased spending on education and healthcare this will increase the productivity of workers as well as equipping them with more skills needed to suit the economy which helps to improve structual unemployment

Question 25

How does government spending reduce unemployment?

Answer 25

An increase in gov spending will increase AD and therefore the real GDP of an economy because labour is a derived demand and real GDP is made up of national output, national expenditure . Increase in real GDP means there is an increase is he demand for labour thus reducing cyclical unemployment

Gov may spend on increasing education which will increase the human capital of workers. Because workers are more skilled their productivity is more attractive to employers and there will be an increase the demand for their labour reducing the risk of structual unemployment

Question 26

How does government spending not reduce unemployment?

Answer 26

If firms are working in a capital intensive industry any increase in Real GDP may encourage them to invest in expanding their production purcushing more capital, not labour, and so unemployment is not guaranteed to reduce there may even be an increase in structual unemployment

Spending on education may be ineffective if the gov invest in the wrong sectors needed for their specific economy and thus this wold create an oppotunity cost.

Question 27

How do demand side policies help with unemployment?

Answer 27

Expansionary fiscal policy & expansionary monetary policy aim to increase total (aggregate) demand in an economy
The demand for labour is derived from the demand for goods/services
If total demand for goods/service increases there will be a higher demand for labour leading to lower unemployment

Total demand can be increased through any policy which increases one of the components of real gross domestic product (rGDP)

Question 28

What are the conflicts with demand side policies and reducing unemployment?

Answer 28

Demand-side policies are very effective at dealing with unemployment caused by a fall in total (aggregate) demand
They are not effective at dealing with frictional & structural unemployment
One conflict caused by expansionary policy is that demand pull inflation is likely to occur
Expansionary monetary policy tends to increase inequality in the distribution of income as the poor are usually unable to benefit from it (banks do not necessarily lend to the poorest households)

Question 29

How do supply side policies help reduce unemployment?

Answer 29

Supply-side policies aim to improve the quantity/quality of the factors of production thereby raising potential output
If output increases then firms will require more workers to produce that output & unemployment may fall
Supply-side policy tends to be long term e.g. breaking trade union power is a long term process, as is training
It is most effective in dealing with unemployment caused by frictional & structural unemployment