8: Unemployment and Inflation Flashcards
Unemployment
refers to people who:
(a) want to work,
(b) are able to work, but
(c) are without work.
Employed
if a person spent one hour or more of the previous week working in a paid job (including self- employment) or family business.
Unemployed
all those who are willing and able to work, and actively looking for work, but don’t have a job.
Not in the labour force
all those not willing or able to work or not actively looking (e.g. in education, retirement, poor health, wealthy or discouraged).
Labour Force FORMULA
LF = number of employed + number of unemployed
Unemployment Rate FORMULA
UR = Number of unemployed / Labour force x 100
Participation Rate FORMULA
PR = Labour Force / Adult Population x 100
4 types of unemployment
- Frictional
- Structural
- Demand Deficient
- Wage-Induced
Frictional Unemployment
- Caused by search times needed for: workers to find jobs and firms to find workers
- Workers have right skills and right locations, they just haven’t found or chosen jobs
Structural Unemployment
• Technological progress and large demand swings cause changes in the structure of the economy
Demand Deficient Unemployment
Economy is not generating enough jobs to employ all who want to work because firms are not hiring workers due to insufficient demand for the goods and services.
Wage-Induced Unemployment
• Caused by workers getting wages above the market-clearing wage.
(a) Unions exercise market power to increase wages above market-clearing level. Higher wage reduces demand for labour below that required for full employment.
(b) Government uses legislative power to set wages above the equilibrium wage eg Minimum wage laws.
Total Unemployment FORMULA
the sum of all the different types of U existing at any time.
Full Employment
- When the economy is at full employment, there may still be some unemployment
- It includes frictional and structural unemployment
2 types of Inflation
- Demand-Pull Inflation
2. Cost-Push Inflation
