4.7 Employment and unemployment

Question 1

Define employment. [2]

Answer 1

Employment refers to the economic use of labour as a factor of production [1], it also includes people who are self-employed [1].

Question 2

Why is high employment a key macroeconomic objective? [6]

Answer 2

• Increases standard of living
• Promotes economic growth
• Increases tax revenues
• Reduces the government’s financial burden
• Prevent lost of skilled labour
• Reduces wealth inequality

Question 3

Define full employment. [1]

Answer 3

Full employment refers to the ideal situation when everyone in a country who is willing and able to work has a job [1].

Question 4

What are the changing patterns and levels of employment? [6]

Answer 4

• Delayed entry to the workforce
• Ageing population
• Higher female participation rates
• More flexible working patterns
• More formal sector employment
• Less public sector employment

Question 5

Define formal sector employment. [3]

Answer 5

Formal sector employment refers to officially recorded employment [1], where workers pay income taxes [1] and contribute to the country’s official GDP [1].

Question 6

Define female participation rate. [2]

Answer 6

The female participation rate measures the proportion of women who are active in the labour force [1]. As an economy develops, there is a higher female participation rate [1].

Question 7

What are the two main ways of measuring unemployment? [2]

Answer 7

The claimant count [1] and labour force survey [1].

Question 8

Define claimant count. [2]

Answer 8

The claimant count measures the number of people who are out of work [1] and claiming unemployment benefits [1].

Question 9

Define labour force survey. [2]

Answer 9

The labour force survey uses the ILO’s standardised household-based survey [1] to collect work-related statistics [1].

Question 10

Define unemployment rate. [2]

Answer 10

The unemployment rate is a measure of the percentage of a country’s workforce [1] that is out off employment [1].

Question 11

What are the types of unemployment. [3]

Answer 11

• Frictional unemployment
• Structural unemployment
• Cyclical unemployment

Question 12

Define frictional unemployment. [2]

Answer 12

Frictional unemployment is transitional unemployment [1] which occurs when people change jobs or are in-between jobs [1].

Question 13

Define structural unemployment. [2]

Answer 13

Structural unemployment occurs when the demand for products produced in a particular industry continually falls [1], often due to foreign competition [1].

Question 14

Define cyclical unemployment. [2]

Answer 14

Cyclical unemployment is unemployment caused by a lack of demand [1], which causes a fall in national income [1].

Question 15

How can a cyclical unemployment be shown in a demand supply of national product curve? [1]

Answer 15

There will be a leftward shift of the demand curve [1].

Question 16

What are the consequences of unemployment? [7]

Answer 16

• Unemployed individuals suffer from mental health issues
• Unemployed individuals’ families and friends suffer from lower income
• Higher level of poverty and crime rates, and lower house prices in the local community
• Firms lose money due to less consumer spending, cause business failures
• Government needs to spend more on welfare
• Government increases reliance on taxpayers’ money
• Lower GDP in the whole economy and becomes less internationally competitive

Question 17

How can the use of fiscal policy reduce unemployment? [4]

Answer 17

The government can reduce the level of taxation [1] to boost the level of consumption [1], which increases the real GDP [1] and brings more employment opportunities [1].

Question 18

How can the use of monetary policy reduce unemployment? [4]

Answer 18

The government can lower the interest rate [1] which reduces the cost of borrowing [1], encourages households and firms to spend and invest [1], and causes a higher demand on labour [1].

Question 19

How can the use of protectionist measures reduce unemployment? [2]

Answer 19

The government can add more regulations such as quotas and tariffs [1], which safeguard the domestic jobs from the threat of international competition [1].

Question 20

What are the policies which help to reduce unemployment? [4]

Answer 20

• Fiscal policy
• Monetary policy
• Supply-side policy
• Protectionist measures

Question 21

How can the use of supply-side policy reduce unemployment? [2]

Answer 21

The government can invest in education and training [1], which helps unemployed people to work in the tertiary sector [1].

The government can reduce the power of trade unions [1],which help to reduce unemployment as trade union members will be harder to have strikes [1].

The government can offer firms to train and hire long-term unemployed people [1], which will reduce the unemployed people in the economy [1].

The government can reduce welfare benefits [1], which gives unemployed people incentives to find a job [1].