effects of declining skills of a country’s young workers (3)

Question 1

what is a microeconomic effect of declining skills in young workers

Answer 1

1. increased occupational immobility: lower human capital as young workers struggle to complete basic tasks (e.g. calculating prices + reading instructions) -> lower skills = lower MRPL -> lower wages as firms hire workers based on this -> labour market diagram LD shift left -> mismatch between skills -> incr structural unemployment -> less labour market flexibility -> young workers struggle to transition between jobs -> incr occupational immobility -> can lead to labour shortages in particular areas e.g. healthcare + finance
2. reduced profits for businesses + incr prices for consumers: firms spend more on training workers due to weak foundational skills -> higher fixed costs (cost/revenue diagram) -> reduced profitability -> less funds for investment in labour-intensive industries e.g. retail + financial services -> less funds to invest in R&D; specialist machinery -> less dynamic efficiency -> limited quality improvement -> firms may pass higher costs to consumers -> less consumer surplus -> decr consumer welfare

Question 2

evaluate the microeconomic effect of declining skills

Answer 2

• technological advancements -> reduces reliance on literacy/numeracy skills e.g. calculators, AI-powered software -> compensates for weaker skills
• incr gov. spending on apprenticeships + vocational training -> reduces occupational immobility + financial burden on firm (e.g. The Apprenticeship Levy)
• not all industries affected equally ‘Gig economy’ -> doesn’t require strong literacy or numeracy skills
• firms may benefit from EoS -> lower LRAC => profits retained

Question 3

what is a macro impact of declining skills

Answer 3

1. less potential eco. growth: reduction in human capital -> reduced efficiency + innovation -> less labour productivity -> LRAS down [diagram] -> less real GDP -> less eco. growth -> less international competitiveness due to higher unit labour costs -> worsened C.A.D -> reduced export revenue = withdrawal (-ve multiplier) -> incr structural unemployment)
2. incr budget deficit -> low-skilled workers struggle to find jobs -> more people on unemployment benefits -> higher fiscal burden -> less income tax revenue -> less funds for investment -> worsens budget deficit -> crowding out = gov. borrows more to fund welfare -> less to invest in public services

Question 4

evaluate the macro impact of declining skills

Answer 4

• in the SR -> negative impacts not as severe
• UK can attract high-skilled workers from overseas -> offsets skill shortages
• supply side policies e.g. A-Levels, T-Levels, etc.

Question 5

random application points for the effect of declining skills on young workers

Answer 5

• automation e.g. in retail, automation of self-checkout services + AI-driven customer service
• £87 billion spent on welfare payments