Low Unemployment Flashcards
Unemployment
People of working age who are without work, available for work and actively seeking employment
Unemployment rate calculation
(Number of unemployed/total labour force) x 100
Labour force
Economically active population (those able to start work and those not retired)
Difficulties measuring unemployment (3)
- Institutional differences in how it is measured.
- Hidden unemployment
- It doesn’t show unemployment distribution
Costs of unemployment (3)
- Cost to individual (low income, mental health)
- Costs to society (increased unemployment rates, poverty, homelessness)
- Costs to economy (lower GDP, incr in govt spending, lower TR)
Aggregate demand for labour (AD)
Total demand for labour in the economy
Types of unemployment (4)
Cyclical, structural, frictional, seasonal
Cyclical unemployment and how to solve
Employment caused by changes in the business cycle. Can be solved by government increasing AD (expansionary fiscal/monetary policy)
Structural unemployment and how to solve
Unemployment caused by a change in the economy’s structure, causing a permanent fall in the demand for a type of labour (ie tech changes, globalisation, consumer tastes) or a change in the institutional framework of the economy (harder to fire workers, minimum wages). Solve by education, subsidies for employment, government support or market based policies
Frictional unemployment and how to solve
Unemployment when in between jobs or having just left education. Solve by
Seasonal unemployment and how to solve
Caused by changing seasons, solve by reducing unemployment welfare or accessible job information
Natural rate of unemployment
Unemployment that exists above the equilibrium of DL=SL
Natural rate of employment formula
Structural unemployment + frictional unemployment + seasonal unemployment
If the economy is at full employment, reducing the natural rate of unemployment can be achieved by…
Supply side policies to increase SRAS as demand side will just be inflationary
Crowding out
An increase in government spending results in an equal (fully) or less than equal (partial) decrease in private sector spending.
