Ch 11.2 Unemployment test

Question 1

What is the difference between voluntary and involuntary unemployment?

Answer 1

• voluntary is when workers choose to remain unemployed and refuse job offers at current market wage rates
• involuntaryis when workers are willing to work at current market wage rates but there are no jobs available

Question 2

What is frictional unemployment. Describe its two causes: geographical worker immobility and occupational immobility of labour

Answer 2

• frictional unemployment is when there are delays in the labour market when a worker is unemployed when moving from one job to another (this definition assumes that a job vacancy exists and that the friction, caused by the immobility of labour, prevents an unemployed worker from filling the vacancy.
• GEOGRAPHICAL immobility of labour is caused by factors such as family ties and local friendships discouraging people from moving to other parts of the country
• OCCUPATIONAL immobility of labour results from difficulties in training for jobs that require different skills. (restrictive practices such as discrimination in labour markets or unnecessary requirements)

Question 3

The Search Theory of unemployment. Why will an unemployed person eventually accept a job that doesn’t meet their aspirations and probably for a lower rate of pay?

Answer 3

• At first they will choose to be unemployed because they do not wish to fill a lower-paid vacancy (frictional unemployment can be seen as a voluntary search period in which newly unemployed workers scan the labour market searching for vacancies which meet their aspirations
• but this may end when the person decides their initial aspirations were unrealistically high and that they must settle for a lower-paid job

Question 4

Why has structural unemployment grown in the UK service sector?

Answer 4

• partly caused by the increasing use of information and communication technology and automated services
• call centre employment has grown significantly though have moved overseas to lower-waged countries such as India
• some companies which used to employ call-centre workers now use automated communication software rather than humans to provide customer services

Question 5

Why are zero hours contracts bad for most workers and good for most employers?

Answer 5

• they do not guarantee a minimum hours of employment, and on average want more hours. only some workers benefit and that’s when they want flexibility in the hours they work, such as students
• the boss has all the power and can send staff home when there is no work to be done, which means they waste no wages when there is no work to be done

Question 6

Describe how structural unemployment has affected the UK since 1945

Answer 6

• from the 1950s to the 1970s, structural unemployment was concentrated in regions where 19th century staple industries such as textiles and shipbuilding were suffering structural decline
• this unemployment from the decline of industries was more than the growth of employment in growing industries
• in the 1980 and 2008 recessions, SE affected almost everywhere in the UK as deindustrialisation process spread - decline in manufacturing industries as a result of international competition

Question 7

Draw the figure 11.14. Analyse the diagram in two stages. Use information on page 387 to explain a) why AD falls and b) why (according to free market economists) AS will then increase, returning the economy to its normal capacity.

Answer 7

a) a collapse in business and consumer confidence causes AD curve to shift from AD1 to AD2
b) free market economists think that when AD shifts left, input costs fall significantly due to weaker demand for labor and materials, so SRAS may shift outward as firms can produce more at lower costs. So the output will go back to normal capacity

Question 8

Explain why unemployment is bad for the economy as a whole and why it is bad for individuals who are unemployed.

Answer 8

• bad for the economy through the waste of human capital, as not all of the economy’s productive resources are used to produce output and could add to the material standards of living and welfare of the whole population
• reduces an economy’s international competitiveness, reduces incentives for firms to invest in tech that lead to competitiveness. Under investment results from a reduced need to invest in capital-intensive tech when there are unemployed workers to hire
• more unemployment means higher taxes for businesses to pay benefits to them
• INDIVIDUALS - low incomes that accompany unemployment lead to low standards of living, as well as families suffer greater health risks, greater stress and reduction in diet. Unemployed people can also feel marginalised and self-esteem is reduced to get a job at all, leading to a negative cycle