L9

Question 1

What are the causes of unemployment?

Answer 1

• frictional unemployment
• seasonal unemployment
• structural unemployment
• cyclical or demand-deficient unemployment
• real wage unemployment

Question 2

Describe in detail frictional unemployment

Answer 2

• most workers who lose their jobs move quickly into new ones
• this is a short-term unemployment and therefore it is not a serious problem
• Frictional unemployment is caused by workers seeking a better job or who are in-between jobs.
• affects new entrants to the labour market such as school and college leavers.
• affects people who rely on short-term contracts and move between employers more frequently
• There is always frictional unemployment in the labour market regardless of the economic cycle.
  • Frictional unemployment can be reduced by making information on jobs more widely available and making job search and applications more affordable e.g. with cheaper, more accessible transport.

Question 3

Describe in detail seasonal unemployment

Answer 3

• some workers are employed on a seasonal basis E.g. construction workers
• fluctuations in output and sales related to the seasonal of the year. For most products there will be seasonal peaks and troughs in production and/or sales. For example, demand for slippers peaks in the run up to Christmas and demand for plants at garden centres is linked to the planting season

Question 4

Describe in detail structural unemployment
Describe two sub-categories of this

Answer 4

Structural unemployment is mainly caused by lack of suitable skills for the jobs available; perhaps a result of de-industrialisation or other structural changes in an economy.
• Often people remain unemployed because of disincentive effects including the unemployment trap.
• Structural unemployment can happen because of other barriers to people finding work including unaffordable housing, the high cost of childcare and expensive transport services
- regional unemployment is an example of this: some areas of a country may suffer higher unemployment levels perhaps because of a lack of mobility of factors of production
- another example is technological unemployment where tech replaces employees

Question 5

Describe in detail cyclical / demand-deficient unemployment

Answer 5

• Cyclical or demand-deficient or Keynesian unemployment is caused by low levels of aggregate demand, reducing the demand for labour across many industries.
  • When aggregate demand falls, this will cause a contraction in real national output and some businesses may make workers redundant as a result.
  • The demand for labour is derived from demand for and spending on goods and services.
  • Cyclical unemployment can rise quickly in recession, but it can increase in a period of slow growth.

Question 6

Describe in detail real-wage unemployment

Answer 6

• real wage rates are stuck above where that needed to reduce unemployment
• also the unemployment trap: This is 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.
• sometimes the minimum wage also prevents people from being able to get employed as they are willing to work below the minimum wage and companies want to hire more people but can’t legally pay them anything under the minimum wage.

Question 7

What are some external shocks which can cause changes in demand output and employment

Answer 7

1. An unexpectedly large rise or fall in the value of the exchange rate.
2. A recession, slowdown or boom in a nation’s key trading partner countries.
3. A slump in the housing market / construction sector of a country heavily reliant on these industries
4. An event such as the Global Financial Crisis which caused a steep fall in the supply of credit available to businesses and households and which ultimately led to recession in many countries.
5. A large change in commodity prices for a country that is a commodity exporter or a net commodity importer

Question 8

What are the four key ways globalisation has been taking place

Answer 8

• the proportion of output of an individual nation economy which is traded internationally is growing
• economic actors in one country have an ever increasing ownership of physical and financial assets E.g. companies, shares, loans, in other countries
• individuals are migrating in ever increasing numbers from one country to another
• technology is being shared between countries on a faster basis