CHAPTER 23

Question 1

What are the 2 measures of unemployment?

Answer 1

• Claimant count; those who claim unemployment benefits

- Labour force survey; based on 600k households, questions asked about employment in the house.

Question 2

Who make up the labour force?

Answer 2

Labour force = number employed + number unemployed

Question 3

What’s the formula for the unemployment rate?

Answer 3

Number unemployed/labour force (x100)

Question 4

What’s the formula for the labour force participation rate?

Answer 4

Labour force/ adult population (x100)

Question 5

What are the 5 main causes of unemployment?

Answer 5

• Frictional (moving between jobs)
• Structural (when demand exceeds supply for jobs)

Occupational/geographical immobility (Can’t switch jobs due to set skills or location)

• Technological changes (machinery replacing human capital)
• Structural changes to the economy (e.g. mines closing)

Question 6

What is union density?

Answer 6

A measure of the proportion of the workforce that is unionised

Question 7

What’s collective bargaining?

Answer 7

The process by which unions and firms agree on the terms of employment.

Question 8

What are the pros and cons of unions?

Answer 8

Pros - Protect workers from poor conditions and low pay

Cons - Reduce the supply of jobs by demanding too much from firms

Question 9

What are the pros of efficiency wages?

Answer 9

Higher than equilibrium wages can benefit workers in 4 ways:

• Health: More money = better standard of living
• Turnover: kept low
• Effect: More likely to be productive
• Quality : better pool of employees

Question 10

What’s Say’s law?

Answer 10

That production and supply is a source of demand

Question 11

Effective demand is…?

Answer 11

The amount people are willing and able to purchase at different prices

Question 12

What does NRU stand for?

Answer 12

Natural rate of unemployment

Question 13

What is cyclical unemployment?

Answer 13

The deviation from the NRU

Question 14

What’s the formula for the NRU?

Answer 14

Rate at which people become unemployed / (Rate people become employed + rate they’re unemployed) (x100)

Question 15

What’s hysteresis?

Answer 15

The lagging effects of past economic events on future ones

Question 16

What are the costs to the individual of unemployment?

Answer 16

Loss of earnings, stress/crime, loss of skills

Question 17

What are the costs to society and the economy of unemployment?

Answer 17

The opportunity cost of the loss of production an u/e person could’ve created, expensive for the government in benefits

Question 18

What’s the reverse multiplier effect?

Answer 18

Unemployment causes a reverse multiplier effect because consumers have less disposable income, therefore companies make less sales. Goods with a high income elasticity will be most affected.