Full employment

Question 1

What is full employment?

Answer 1

Full N indicates a non-zero, low rate of unemployment that is compatible with price stability, when all those who are w&a to work have gained employment.

Question 2

What is underemployment?

Answer 2

Underemployment refers to a situation where labour is under-utilised

• workers who are w& a to work full-time, but are forced to work fewer hours than they would like
• skilled workers doing low-skill jobs

Question 3

Limitations of unemployment statistics

Answer 3

• discouraged workers -> given up job search -> excl from official stats of unN altho given the chance, they would be willing to work. therefore unN statistics understates the actual unemployment
• underemployment -> actual unN is understated in the stats when workers, though employed, are working below their pdtive capacity
• unreported N -> those who fail to report legel N bc this might jeopardise their Y -> unN rate is overstated in stats; e.g. those who want to continue enjoying unN benefits, those in the shadow economy

Question 4

5 Types of unN and their causes

Answer 4

• FUE: occurs when ppl leave their jobs (ir are made to leave) and are unemployed for a period of time while looking for a new job -> FUE will always exist at any one point of time bc of imperfect info in the L mkt, needing both employers and job-seekers to spend time searching for the best match available
• dd-deficient unN: unN that is due to the lack of AD.
• —> one type of dd-deficient unN is cyclical unN, which rises and falls over the business cycle
• Structural unN: occurs when there is a mismatch btwn the skills or location of unN workers and the skills required by, or location of, available jobs -> occupational immobility (lack of relevant expertise to find jobs in expanding industries), geographical immobility (unw&a to move from region to region to take on jobs)
• Real-wage (Classical) unN: when real wages are forced above the mkt-clearing lvl, leading to an excess ss of L.

Question 5

Costs (Cons) of unN

Answer 5

• worsens material SOL of hhs
• worsens non-material SOL
• high unN will cause the ecy to lose a large amt of o/p, this represents an opportunity cost to society, measured as a loss of ec welfare since smaller o/p means fewer needs and wants can be fulfilled and lower utility derived
• decline in I in the SR, leading to
• lower potential growth in the LR
• erosion of skills, undermining potential growth in the future
• worsening of budget position: loss of tax rev and incr in gov spending
• undermine cr and investor confidence
• rising inequality and other social costs