Chapter 10 - Unemployment

Question 1

Define the labour force

Answer 1

The labour force of a country is made of those who are employed and those who are unemployed but are actively looking for a job. It is also called the working population or the economically active population.

Question 2

What is unemployment?

Answer 2

Unemployment is defined as the situation where labour who are willing and able to find work cannot find work.

Question 3

What is unemployment rate?

Answer 3

Unemployment rate = (no of unemployed/total labour force) x 100%

Question 4

What is employment rate?

Answer 4

employment rate = (no of employed/total labour force) x 100%

Question 5

What are the 3 types of unemployed?

Answer 5

1. Involuntary unemployment: willing and able to work but cannot find work
2. Voluntary unemployment: labour chooses not to take up available employment, anticipating better jobs can be found
3. Underemployment: ability of labour to obtain employment but not being used to maximum ability (e.g. trained engineer working as delivery rider)

Question 6

What are some examples of unemployment?

Answer 6

1. Involuntary unemployment: willing and able to work but cannot find work
2. Voluntary unemployment: labour chooses not to take up available employment, anticipating better jobs can be found
3. Underemployment: ability of labour to obtain employment but not being used to maximum ability (e.g. trained engineer working as delivery rider)

Question 7

What is the labour force participation rate (LFPR)?

Answer 7

LFPR = (working population/total population) x 100%

Question 7

What is the labour force participation rate (LFPR)?

Answer 7

LFPR = (working population/total population) x 100%

Question 8

What is full employment?

Answer 8

Full employment refers to a situation where job seekers who are willing and able to find work can find jobs (whether they take up those jobs is another thing)

Question 9

What is natural rate of unemployment?

Answer 9

Natural rate of unemployment is unemployment that exists when the economy is at full employment

Question 10

What is demand deficient/cyclical unemployment?

Answer 10

Demand deficient/cyclical unemployment arises from insufficient AD, which may be caused by business causes as well as economic shocks.

Question 11

What is structural unemployment?

Answer 11

Structural unemployment arises from the mismatch of skills between the unemployed and the employer. This mismatch arises due to change in structure of the economy, which may be due to changes in the method of production or changes in the types of goods being produced.

Question 12

What are the possible causes for structural unemployment?

Answer 12

• Increased globalisation (offshoring, emergence of low cost producers)
• Technological advancements
• Economic restructuring
• Lack of effort to facilitate training
• Relocation of factories to other regions in the country

Question 13

What is offshoring?

Answer 13

Offshoring is the relocation of factories from one country to another. The relocation usually occurs from higher cost countries to lower cost countries.

Question 14

What is occupational immobility?

Answer 14

Occupational immobility is the inability of labour to switch between different occupations. It is affected by the level of transferable skills and education requirements of jobs.

Question 15

What is occupational immobility?

Answer 15

Occupational immobility is the inability of labour to switch between different occupations. It is affected by the level of transferable skills and education requirements of jobs.

Question 16

What is geographical immobility?

Answer 16

Geographical immobility is the unwillingness or inability of labour to move around an area, region or country in order to work (e.g. due to ties to families and friends).

Question 17

What is economic restructuring?

Answer 17

Economic restructuring refers to a transformtion of an economy in terms of the type of goods and services the economy is producing.

Question 18

What is frictional unemployment?

Answer 18

Frictional unemployment arises as time is required for job seekers to look for suitable jobs and employers to look for suitable workers because of information imperfections in the labour market.

Question 19

What are some possible causes of frictional unemployment?

Answer 19

• Job transition arising from employee dissatisfaction and career transition
• Job seekers who are re-joining the workforce
• Generous unemployment benefits

Question 20

What are the consequences of unemployment on households?

Answer 20

• Fall in material and non-material SOL

Question 21

What are the consequences of unemployment on firms?

Answer 21

• Fall in profits

Question 22

What are the consequences of unemployment on the economy?

Answer 22

• Fall in potential growth and SOL
• Fall in actual growth
• Widening income gap

Question 23

What are the consequences of unemployment on government?

Answer 23

Worsening of government budget balance

Question 24

What are the consequences of unemployment on government?

Answer 24

Worsening of government budget balance

Question 25

What are the policies to combat cyclical unemployment?

Answer 25

• Expansionary FP
• Expansionary MP centered on interest rates
• Expansionary ERP (Depreciation)

Question 26

What are the different remedies for structural unemployment?

Answer 26

For increased globalisation, tech advancements, economic restructuring, lack of effort to faciliate training, relocation of factories to other regions in the country:
- Facilitating skills upgrading (provision of training, subsidised training)

For emergence of low cost producers:
- protectionist measures (import substitution, ERP depreciation)

For relocation of factories to other parts of the country:
- movement of resources

Question 27

What are the limitations of facilitating skills upgrading?

Answer 27

Facilitating skills upgrading can raise LRAS.

Limitations:
- strain on govt budget
- long-run solution as it takes time for unemployed workers to be retrained
- time lag as unemployed may not be willing to participate
- firms may not be willing to send their workers for retraining as it may result in reduced output during training

Question 28

What are the limitations of protectionist measures?

Answer 28

Protectionism helps to slowdown the decline of industries and gives workers more time to learn new skills.

Limitations:
- in the long-run, protectionist measures may result in retaliatory action such as imposition of tariff by trading partners, resulting further decline for exports

Question 29

What are the limitations of movement of resources to combat geographical immobility?

Answer 29

• Strain govt budget
• Takes time for infrastructure to be established before industries or labour may consider moving

Question 30

What are the remedies for frictional unemployment?

Answer 30

For employee dissatisfaction, career transition and rejoining workforce:
- Providing information on the availability and requirements of jobs (setting up employment agency and online portals, organising job fairs)

For generous unemployment benefits:
- Reducing employment benefits

Question 31

What are the limitations of providing information on the availability and requirements of jobs?

Answer 31

Providing information reduce search time as well as help potential employee make more informed choices (leading to less future frictional unemployment)

Limitations:
- strain on govt budget

Question 32

What are the limitations of reducing unemployment benefits?

Answer 32

Reduction in unemployment benefits reduce incentive for job seekers to take their time in searching for a job
Limitation:
- unemployed may abruptly sign up for a job that may not be truly suitable for them (leading to future rising fricitonal unemployment)
- reduce material SOL of unemployed due to less allowance
- falling RNY due to fall in consumption expenditure due to lower allowances