lesson 17: unemployment Flashcards
what are the five types of unemployment?
frictional
structural
seasonal
voluntary
cyclical
what is the cause for frictional unemployment?
between jobs, short term, immobility of labour
what is the cause for structural unemployment?
skill no longer needed
job gone forever
what is the cause for seasonal unemployment?
tourism, agriculture, short term basis laid off at certain times
what is the cause for cyclical unemployment?
deficient AD
keynesians argue it can be long term caused by downturns in the econ cycle
what is the equilibrium employment?
number of people wishing to work at the going wage rate equals the number of workers demanded by employers (aggregate labour market is in equilibrium)
what are things that discourage people from seeking work which can also be seen as a cause of equilibrium unemployment?
imperfect information
occupational immobility
geographical immobility
tax and benefit system
what is the equilibrium rate also known as and what does it consist of?
the NRU
voluntary, frictional and structural unemployment
what do free market economists argue about unemployment?
much of it is voluntary
the unemployed need to get on their bikes and find work
what are solutions to voluntary unemployment?
cutting benefits
forced interviews
low income tax
work for your benefits
tapering or cutting benefits
if we are below the NRU we should?
stimulate
if we are getting down to the NRU we should?
supply side
what do the free marketeers believe we should do to get down the NRU?
- encourage businesses to hire with businesses friendly policies
1. cut corp tax
2. cut red tape
3. reduce union power - encourage workers to work
1. raise tax thresholds for the low paid
2. universal credit
what do the interventionists believe we should do to get down the NRU?
- train the unemployed
1. increases skills - regional policies to help areas with high unemployment
- invest in education
what does everyone agree unemployment represents?
waste of scarce resources and a scourge to society
what do free marketeers believe the interference of governments and unions in labour markets do?
prevents it from clearing and creates unemployment
what do keynsians believe the root cause of unemployment is?
lack of demand and the governments role is solving this demand deficient unemployment
what is real wage/classical unemployment?
unemployment caused by excessively high wage rates
what is the chain of reasoning for the real wage unemployment?
AD for labour falls
real wages may not fall as workers are resistant to wage cuts (sticky downwards)
there is excess supply
labour markets wont clear
we have unemployment
what type of unemployment do keynesians believe will always be there, and what does it risk becoming?
frictional and structural
cyclical
cyclical unemployment is caused by a lack of demand but what may cause this?
economic shock
speculative bubble bursts
falling consumer confidence
what is says law?
if all money earnt is spent then we are in equilibrium
why do keynesians argue that says law breaks down?
because when confidence is low factor incomes will not all be spent
what is the free markets view on unemployment?
we will inevitably have structural and frictional unemployment
in the long run the economy operates at full employment
they argue if governments lets the market work freely it will adjust to eliminate cyclical unemployment
