Employment Flashcards
Full employment
A low rate of unemployment when all those who are willing and able to work have gained employment.
Level of unemployment
The number of people who are actively looking for work but are unable to find jobs.
Unemployment rate
The number of unemployed expressed as a percentage of the labour force.
Limitations of Unemployment rate as a measure of full employment within the economy.
a) Underemployment: Workers are not working as much as they would like to. Eg, During a recession, workers may work part time jobs instead of full time jobs, where their skills are not being fully utilised. In these cases, the unemployment rate understates the true level of unemployment in the economy.
b) Statistical limitations: Constant movement of people into and out of the labour force. Statistics collected may not be accurate or outdated. It is also difficult to determine whether an individual is actively seeking work.
c) In reality, there will be a certain level of unemployment despite economy operating at full employment. Full employment is a situation where all FOP are fully utilised.
Demand Deficient Unemployment
Unemployment that is associated with the level of aggregate demand that is insufficient to provide enough jobs to ensure full employment.
Causes of Demand-Deficient Unemployment
Fall in AD.
Structural Unemployment
Unemployment due to a mismatch between the skills of the unemployed and those skills required by producers.
Causes of Structural Unemployment
a) Changes in Demand: A long term fall in demand would result in a fall in production, causing a fall in demand for labour. It occurs when retrenched workers from sunset industries cannot find work in other industries because they do not have the skills required or jobs are located in areas where they are unwilling or unable to move to.
b) Changes in technology: Structural UnN can also arise due to advancement in technology where automation, robotisation and artificial intelligence transformed work processes making certain routine tasks less in demand. These capital can be used to replace labour to allow for the same level of output to be produced with fewer workers and may make labour redundant.
Frictional Unemployment
When people become unemployed for a period of time while they are looking for or waiting to take up a new job.
Causes of level of frictional unemployment
a) Availability of information: With imperfect information, job seekers are not fully informed of available job opportunities and employers are not fully informed about what labour is available. Parties will have to take time to search for the right counterparts, and hence frictional unemployment is inevitable because information will never be perfect for all economic agents.
b) Level of unemployment benefits: The higher the level of unemployment benefits available, the higher the level of frictional unemployment. Individuals are likely to be pickier or less devoted into job search when unemployment benefits are high.
Consequences of high and prolong unemployment
a) Inefficiency in resource allocation: Unemployment causes under-utilisation of resources and economy suffers from a loss of output. Unemployment is thus a misallocation of resource since there are idle resources that are not used to satisfy wants.
b) Slow down Economic Growth: As confidence in the economy declines due to rising unemployment rates, people’s willingness to spend falls as they save more. Fall in C causes a fall in AD, ceteris paribus. Firms may also lose confidence in the economy and choose to invest less. High Unemployment also causes the government to spend more on unemployment benefits and collect less tax revenue since unemployed do not pay income taxes. Thus impeding long term economic growth.
c) Slow down Potential Growth: Workers who remain unemployed for too long may face an erosion of skills over time, as they grow out of touch. Deskilling results in a fall in their productivity, quality of labour falls and thus productive capacity falls.
d) Lower material and non-material SOL
e) Lower FDI and capital inflows: With erosion of skills from prolong Unemployment, countries lose competitiveness when their workers become deskilled and less productive. Countries becomes less attractive to FDI. Causing a fall in capital inflow.
f) Unequal distribution of unemployment.
