LS9 Employment And Balance Of Payments Flashcards
What are the causes of unemployment?
- frictional unemployment
- seasonal unemployment
- structural unemployment
- cyclical or demand-deficient unemployment
- real wage unemployment
Describe in detail frictional unemployment
- 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.
Describe in detail seasonal unemployment
- 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
Describe in detail structural unemployment
Describe two sub-categories of this
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
Describe in detail cyclical / demand-deficient unemployment
- 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.
Describe in detail real-wage unemployment
- 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.
What are some external shocks which can cause changes in demand output and employment
- An unexpectedly large rise or fall in the value of the exchange rate.
- A recession, slowdown or boom in a nation’s key trading partner countries.
- A slump in the housing market / construction sector of a country heavily reliant on these industries
- 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.
- A large change in commodity prices for a country that is a commodity exporter or a net commodity importer
What are the four key ways globalisation has been taking place
- 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
What are the components of the balance of payments?
- Current account
- Capital account
- Financial account
Describe the components of the current account
- Trade balance:
- trade in goods
- trade in services - Income balance:
- investment income (from capital investment, interest on loans, dividends)
- current transfers (e.g, foreign aid, remittances)
Describe the components of the capital account
- debt forgiveness
- inheritance taxes
- death duties
- sales of tangible and non tangible assets
Describe the components of the financial accounts
- Portfolio investment: e.g. in bonds shares or other securities
- Foreign Direct Investment
- Reserves of currency or gold
What are the two measures of unemployment
- claimant count
- International Labour Organisation and UK labour force survey
Describe the claimant count and its definition of unemployment
This is based on the number of people who are claiming unemployment-related benefits, such as Jobseeker’s Allowance. It provides a narrow definition of unemployment, as it only includes those actively seeking and receiving government benefits.
Describe the UK labour force measure of unemployment and its definition of unemployment
The ILO defines unemployment as individuals of working age who are without work, actively seeking work, and available for work.
The UK Labor Force Survey is the primary source of unemployment data in the UK and follows the ILO definition.
It provides a broader and more comprehensive picture of unemployment, including those not eligible for benefits.
