MACRO - 4. unemployment ✅ Flashcards
what is the difference between underemployment and unemployment
UNDEREMPLOYMENT is when employees in jobs that don’t reflect their skills level whereas UNEMPLOYMENT is when they arent being employed but are actively seeking a job
what is long term unemployment and hidden unemployment
LONG TERM - someone out of work for more than 12 months and longer the duration harder it is to find work as skills decline (frictional, seasonal, structural, real wage caused by supply side)
HIDDEN - workers lose jobs so demotivated and discouraged so don’t actively seek work but if new job came up they would take it
what statistics are important within unemployment
EMPLOYMENT RATE - number of those in work / working age population
UNEMPLOYMENT RATE - number not in work but seeking work / labour force
ACTIVITY/PARTICIPATION RATE - number in work/unemployed / working age population
INACTIVITY RATE - number not in work/unemployed / working age population
what is involved with frictional unemployment
- short term unemployment, loss of job quickly
- in free market frictional unemployment always exists but time varies
- higher unemployment = benefits so workers able to afford to search for good job without poverty risk
- if job services good = less time searching
what is involved with seasonal unemployment
- workers on seasonal basis, high in winter fall in summer
- not much done to prevent labour demand changes
what is involved with structural unemployment
- labour demand less than supply in individual labour market, divided into different sectors:
REGIONAL - lack of mobility between regions
SECTORAL - skills no longer needed without training so unable to adapt to changing demand
TECHNOLOGICAL - new technology so unemployment
what is involved with cyclical unemployment
- involves economic cycle happens when economy isnt in boom
- insufficient AD for all workers, capital also underutilised
- cyclical/real wage unemployment result of market disequilibrium as lack of demand for labour/rigidities in labour market
what is involved with real wage unemployment
- real wages stuck at level above needed to reduce unemployment
- minimum wages as workers may be prepared to work for less
- refusal of jobs as gaining more in benefits replacement ratio = ratio between benefits received and wage a worker could receive
what are the effects to economy and individuals of unemployment
- DEFLATION RISK (high U = lower AD, high deflationary pressures, high spare capacity)
- LOSS OF INCOME (disposable, living standards decline)
- FISCAL COSTS (lower tax revenue, higher welfare spending, budget deficit increase higher risk of increasing taxes/ cutting public spending)
- SOCIAL COSTS (high U linked to poverty growth, widening inequality of income/wealth)
- MIGRATION (moving out when high U)
how does unemployment cause the negative multiplier
negative multiplier = loss of potential national output, waste scarce resources and hysteresis effect if people leave labour market permanently has long term AS effect
what policies can be employed to reduce unemployment
- reducing occupational immobility
- reducing geographical immobility
- benefit and tax reforms
- increasing AD
how can reducing geographical/occupational mobility influence unemployment
- policies like apprenticeship schemes can provide new skills, improve incentives to find work as workplace training poor with skills gaps so better funding
- many economists point to low level of new build housing impeding labour mobility
how can benefits and tax reforms reduce unemployment
- lower marginal tax rates for low incomes
- reducing welfare benefits increasing incentive to take job
how does increasing aggregate demand reduce unemployment
- Keynesian style active policy during recession
- state investment increases and lower taxes to boost disposable income
- stronger positive muliplier
disadvantages of falling unemployment
- extra spending from expanding labour market could worsen current account
- demand-pull, cost-push inflationary pressures increase if rapid fall in unemployment
- fewer spare labour = rise in unfilled vacancies so labour shortages may put off inward investment
