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MACRO ECONOMICS > Employment + Unemployment > Flashcards

Employment + Unemployment Flashcards

1
Q

Two main measures of unemployment in the UK are:

A
  • The claimant count (measures the number pf people who are claiming unemployment benefits) - no longer used
  • The Labour Force survey (LFS) - official measure of unemployment
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2
Q

Voluntary unemployment

A

Voluntary unemployment - occurs when workers choose to remain unemployed and refuse job offers at current market wage rates

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3
Q

Involuntary unemployment

A

Occurs when workers are willing to work at current market wage rates but there are no jobs available

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4
Q

Frictional unemployment

A
  • Transitional unemployment and is ‘between jobs’ unemployment
  • Occurs in the labour market when a worker moves from one job to another job
  • There is always some frictional unemployment in the labour market regardless of the economic cycle
  • Also caused by imperfect information in labour market. Incentive problems relating to the generosity of unemployment benefits or high taxes on low paid jobs.
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5
Q

Structural unemployment

A
  • Caused by a lack of suitable skills for the jobs available; a result of de-industrialisation or shutdowns (coal mining/ type writers)
  • Often a result of occupational immobility and geographical immobility
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6
Q

Cyclical unemployment

A
  • Caused when there is a lack of aggregate demand in the economy
  • Occurs when the economy goes into a recession or depression
  • When aggregate demand falls, this will cause a contraction in national output and some businesses may make workers redundant as a result
  • The demand for labour is derived from the demand (and spending on) goods and services
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7
Q

Full employment

A
  • Refers to the lowest level of unemployment practically achievable
  • (Beveridge definition 1944) identified this as 3% unemployment, and it is a target for government policy
  • This was an arbitrary (random) level, free market economists developed a theory = full employment as occurring when the aggregate demand and supply curves of labour were in equilibrium at the market clearing real wage rate.
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8
Q

Unemployment

A

Unemployment exists when those able, willing and available yo work are unable to find a job despite searching for one.

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9
Q

Full employment diagram

A
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10
Q

Full employment diagram

A
  • Diagram illustrates there no unemployment when we have full employment - this is NOT the case
  • There will will always be some unemployment as in the changing economy, jobs are constantly being created and disappearing
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11
Q

4 types of unemployment =

A
  • Frictional
  • Structural
  • Cyclical
  • Seasonal
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12
Q

Seasonal

A
  • Occurs when workers are laid off on a short term basis at certain times of the year
  • Commonly in industries such as agriculture + tourism (fruit pickers/ ski instructors)
  • Result from weather conditions or changes in demand
  • Seasonality refers to fluctuations in output and sales related to the season of the year. For most products there will be seasonal peaks and troughs peaks and troughs in production/ sales.
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13
Q

Cyclical unemployment - Keynes

A
  • Keynes argues that the economy could settle into an under full employment equilibrium (caused by continuing lack of effective demand)
  • Unlike frictional unemployment (voluntary), this is involuntary (not caused by the workers themselves)
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14
Q

Cyclical employment - Keynes / free market

A

Effect of an economic downswing (depression/ recession): -

  • Keynes = Major cause of persistent cyclical unemployment
  • Free market economists = May be a temporary cyclical unemployment
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15
Q

Keynes explanation

A

When aggregate demand is low and wage rates are sticky (do not fall), demand for labour will decrease, therefore causing unemployment to rise and economic growth can slow down

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16
Q

Free market explanation

A

If workers lowered their wage rates, demand for labour would increase.

Cyclical unemployment =
- Temporary
- Self correcting

Provided that markets are competitive and prices and wages are both flexible

17
Q

Cyclical unemployment - PPF

A
18
Q

Cyclical unemployment caused by an inwards shift in AD

A
19
Q

Real Wage theory

A
  • Free market economists view that unemployment is caused by too high a level of real wages
  • However as long as labour markets are competitive, market forces cure the problem by bidding down the real wage rate to get rid of excess labour supply
20
Q

Occupational immobility

A

Refers to workers being unable to move between different types of jobs and sectors - usually due to a lack of relevant skills/ qualifications

21
Q

Geographical Immobility

A

Occurs when workers are unable to move to find work, perhaps because of transport systems are poor or because of house price and living cost differentials - (north and south divide)

22
Q

Unemployment trap

A

Situation in which there is little financial incentive for someone who is unemployed to start working because the combined loss of welfare benefits and a need to pay income tax and other direct taxes might result in them being worse off.

23
Q

Policies to reduce unemployment

A
  • Macro stimulus policies
  • Cutting the cost of employing extra workers
  • Competitiveness policies
  • Improving occupational mobility
24
Q

Economic/ social costs of unemployment

A
  • Slower economic growth
  • Risks of period price deflation because of falling aggregate demand
  • Rising income inequality
  • Erosion of peoples skills (human capital) arising from long turn unemployment
  • Fiscal budget costs to the government as tax revenues shrink and welfare spending increases
25
Q

Macro stimulus policies

A
  • Low interest rates and improving credit supply to businesses
  • Depreciation in the exchange rate (to help exports)
  • Infrastructure investment projects (fiscal policy)
26
Q

Cutting the cost of employing extra workers

A
  • Reductions in the rate of national insurance contributions
  • Financial support for apprenticeships/ paid internships
  • Extra funding for regional policy - special economic zones
27
Q

Competitiveness policies

A
  • Reductions in corporation tax (to increase investment)
  • Tax incentives for research/ innovation spending
  • Enterprise policies to encourage new business start ups
28
Q

Improving occupational mobility

A
  • Better funding for and more effective work training
  • Teaching new skills e.g. coding / languages
  • An expansion of apprenticeship/ internship programmes
29
Q

Policies to reduce unemployment - Labour demand

A
  • Macro stimulus policies (+ multiplier effects)
  • Cutting the cost of employing workers
  • Competitiveness policies
30
Q

Policies to reduce unemployment - labour supply

A
  • Reduce occupational mobility
  • Improving geographical mobility
  • Stimulate stronger work incentives
31
Q

Improving geographical mobility

A
  • Rise in house building will help keep property prices lower and encourage more affordable rents
  • Active regional policy to create new jobs and businesses
32
Q

Stimulate stronger work incentives

A
  • Higher minimum wage or a living wage
  • Reductions in income tax / national insurance
  • Welfare reforms to reduced the risk of the poverty trap

MACRO ECONOMICS (22 decks)

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