7.4 Employment and unemployment Flashcards
What is voluntary unemployment?
workers choosing not to participate in the labour market at the current equilibrium wage rate
What is involuntary unemployment?
people are unable to work because there are insufficient jobs available in the economy
How do you calculate the replacement ratio and what does it mean?
Disposable income out of work / Disposable income in work
If the ratio is close to or above 1 it shows less incentive to work as benefits are the same if not higher than working income
How can the replacement ratio be reduced?
Less generous benefits
Minimum wage increases
Tax credits (which allow people in lower paid jobs to keep some their benefits)
Lower income tax or a higher ‘tax free’ allowance
What is the natural rate of unemployment?
The gap between the supply of labour and the entire labour force including those who are voluntarily unemployed
What factors determine the natural rate of unemployment?
Skills and education
Availability of job information
Occupational mobility
What is real wage unemployment and how is this shown on a diagram?
Occurs when wages are above the equilibrium level causing the supply of labour to be greater than demand
Excess supply
What are reasons for wages going above equilibrium and causing real wage unemployment?
Trade unions
Rise in national minimum wage
What is cyclical unemployment?
Insufficient AD within the economy also known as demand deficient or Keynesian unemployment.
What is frictional unemployment?
Short-term transitional unemployment or between jobs unemployment.
What is structural unemployment?
Long term changes in market conditions resulting from mismatches between the labour supply available and the labour demand for differently skilled labour
