Labour market part II Flashcards
What is the unemployment rate?
Unemployment rate = share of the labour force that is unemployed
What is the definition of unemployment according to ILO (International labour organisation)?
Definition of unemployment according to ILO (International Labour Organization):
A person is unemployed if he/she
(a) does not have a job,
(b) is available for work and
(c) is actively searching
Note: Differs from register-based unemployment, which is based on unemployment insurance statistics
How do we measure unemployment?
Operationalization in the Labour Force Survey:
(a) fully unemployed in the reference week
(b) able to start working within 2 weeks
(c) has been looking for a job within the last 4 weeks
If these conditions are satisfied, the person is regarded as unemployed.
(The a,b and c are directly related to the a,b and c of the definition)
How is it measured in DK?
As in the labour force survey but also unemployment statistics. Unemployment statistics are also the base of register-based unemployment.
Why is unemployment a lagging indicator of the business cycle?
When economy recovers, businesses first try to raise productivity before hiring additional workers
When entering a downturn, businesses rather reduce work hours or impose pay cuts before letting workers go
What is meant by structural unemployment?`
According to classical economic theory, every market, including the labour market, should have an equilibrium where supply and demand are equal. However, labour fails to reach an equilibrium. Sometimes it is a matter of wages not adjusting to clear the market. E.g. some skilled workers may have reservation wages (below which they are not willing to work) but which are higher than what employers are willing to pay. Or employers are only willing to pay below the minimum wage set by government. When such rigidities in the labour market lead to a shortage of jobs, it is called structural unemployment and those who are structurally unemployed tend to have longer spells of joblessness, on average.
Structural unemployment due to mismatch between demand and supply of labor across regions and skills + legislation / labor market institutions / policies (e.g. minimum wages)
What is frictional unemployment?
When people not are unemployed because there is a shortage of jobs but because finding a job takes time. Temporary spell of unemployment, matching workers takes time.
Can the unemployment rate ever fall to zero?
No. We always have two types of unemployment in the economy - frictional and structural unemployment.
What is the natural rate of unemployment?
Non-accelerating inflation rate of unemployment (NAIRU) = Amount of unemployment that the economy experiences in “normal times” (output gap = zero)
Also called natural rate of unemployment
Combination of 2 types of unemployment:
a) Frictional unemployment due to temporary spells of unemployment
b) Structural unemployment due to mismatch between demand and supply of labor across regions and skills + legislation / labour market institutions / policies (e.g. minimum wages)
Influenced by structural policies
What is meant by cyclical unemployment?
Year-to-year fluctuations in unemployment around its natural rate
Related to the short-run ups and downs of economic activity
Influenced by monetary and fiscal policy
What is job polarization?
When middle-skill jobs (such as those in manufacturing) are declining but both low-skill and high-skill jobs are expanding. In effect, the workforce bifurcates into two groups doing non-routine work: highly paid, skilled workers on the one and low-paid unskilled workers on the other.
We have a recent phenomena of: (a) automation and offshoring of middle-skill jobs (e.g. manufacturing), (b) Middle-skill workers shift to low-skill jobs in service sector (less susceptible to automation) and (c) Expansion of high-skill jobs
The consequence of this is job polarisation
(The jobs we have left are the ”Lousy and the Lovely Jobs”)
I.e. jobs for high-paid, skilled workers (such as architects, dentists and senior managers) and jobs for low-paid, unskilled workers (such as cleaners, burger-flippers, cashiers, security guards)
What drives automation and job polarisation?
Vulnerability to automation
• does not so much depend on whether work is manual or cognitive
• depends on whether work is routine or non-routine
• increasingly applies to many jobs previously considered as non-routine
Rapid technological progress in robotics and machine learning means that automation will accelerate
Should we be concerned for a jobless future?
Warnings about large-scale job loss are not a recent phenomenon:
As we know, these concerns were largely unwarranted - technology ended up creating more jobs than it destroyed
Example: Banking in the US
• introduction of led to decline in number of bank tellers from
• however, the lower cost of running a branch allowed for new branches to be opened and the total number of employees to increase
ATMs changed the employees’ work mix: fewer routine tasks, more customer services
What is the lump of labour fallacy?
Lump of labour fallacy: notion that there is a fixed amount of work to be done – a lump of labour – which can be shared out in different ways to create fewer or more jobs
How does the lump of labour fallacy ignore the economic response to automation?
• More workers are needed to perform tasks around machines that cannot be automated - in effect, more jobs might be created than destroyed
Example: decline of horse-related jobs due to cars led to job creation in motel and truck and fast-food industry along highways
• As certain services become cheaper, consumers spend time and money on other activities, increasing demand elsewhere in the economy additional jobs are created
• Human imagination is too limited to predict which jobs emerge in the future
Example: video-game designer, social media coordinator
