Macro 5 - Employment and Unemployment

Question 1

Define the term unemployment

Answer 1

Unemployment occurs when people who are willing, able and available to work are not currently employed

Question 2

What is the level of unemployment?

Answer 2

The level of unemployment is the number of people out of work

Question 3

Define the term workforce

Answer 3

The workforce refers to the number of people employed plus the number of people unemployed

Question 4

What is the formula used to calculate the unemployment rate?

Answer 4

Number of people unemployed / Total number of people in the workforce * 100

Question 5

Define the term underemployment

Answer 5

A person is underemployed if they are in paid employment but want to work more hours than they are currently employed to do so or they are currently working a job they are over-qualified for

Question 6

What are the 2 ways of measuring unemployment?

Answer 6

• The claimant count
• The labour force survey

Question 7

What is the claimant count?

Answer 7

The claimant count a measure of unemployment using the number of claimants of job-seekers allowance and other unemployment-related benefits from the government

Question 8

What are the advantages of using the claimant count to measure unemployment?

Answer 8

• The data is easy to obtain as it already exists
• There is no cost in collecting the data as it is already recorded when people apply for the benefits

Question 9

What are the disadvantages of using the claimant count to measure unemployment?

Answer 9

• Not everyone who is unemployed is eligible to claim benefits and not everyone who is unemployed chooses to claim benefits due to the stigma that exists when sometimes claiming benefits. This means the claimant count can under-represent actual unemployment levels
• People may lie while claiming benefits and actually be working at the same time meaning the claimant count could overestimate actual unemployment levels
• The claimant count makes it difficult to compare unemployment figures between countries as different countries have different eligibility criteria for claiming beneifts

Question 10

What is the labour force survey?

Answer 10

The labour force survey is a measure of unemployment of those out of work in the last four weeks and ready to start in the next two weeks by using a sample of the population

Question 11

What are the advantages of using the labour force survey to measure unemployment?

Answer 11

• It is thought to be more accurate than the claimant count as individuals are included regardless of whether they claim benefits or not
• It is an internationally agreed measure for unemployment so it is easier to make comparisons with other countries

Question 12

What are the disadvantages of using the labour force survey to measure unemployment?

Answer 12

• It is expensive to collect and put together the data
• The sample may be unrepresentative of the population as a whole making the data inaccurate
• The survey may be inaccurate as the data is six weeks out of date by the time it is published

Question 13

Define the term inactivity

Answer 13

Inactivity is the number of people of working age who are either unwilling or unable to work

Question 14

What is the formula used to calculate the inactivity rate

Answer 14

Inactivity rate = Number of people inactive / Population of working age * 100

Question 15

Define the term discouraged workers

Answer 15

Discouraged workers are workers who are not looking for a job but would accept a a job if offered one

Question 16

What can the government do about high levels of inactivity in the workforce?

Answer 16

• Increase the national minimum wage
• Reduce benefits
• Reduce income tax

Question 17

What are the 5 types of unemployment?

Answer 17

• Real wage unemployment
• Cyclical unemployment (Demand deficient)
• Structural unemployment
• Frictional unemployment
• Seasonal unemployment

Question 18

What is real wage unemployment?

Answer 18

Real wage unemployment occurs when wages are above the equilibrium level causing excess supply of labour

Question 19

Draw a diagram showing real wage unemployment as a result of introducing a national minimum wage

Answer 19

See page 9 in pack 5

Question 20

Why may removing the national minimum wage not be beneficial for reducing real wage unemployment?

Answer 20

• Firms will pay workers less which reduces their real disposable income which reduces consumer spending and therefore AD
• It would make large firms more likely to exploit workers through their monopsony power
• It would lead to people needing more income support in the form of benefits creating an opportunity cost for the government

Question 21

What is cyclical unemployment?

Answer 21

Cyclical unemployment is demand deficient unemployment. If there is not any demand for a firm’s output firms will not require many employees therefore cyclical unemployment usually occurs during a recession when aggregate demand is low

Question 22

How were the thoughts of classical and Keynesian economists about unemployment different?

Answer 22

Classical economists argued that the solution to unemployment should be left to the market and the economy will self-adjust whereas Keynesian economists considered the government responsible to reduce unemployment

Question 23

What is structural unemployment?

Answer 23

Structural unemployment is a measure of workers who lose jobs in a declining industry and do not have the skills to join other industries

Question 24

What is frictional unemployment?

Answer 24

Frictional unemployment is a measure of the number of people who are between leaving one job and starting another. This type of unemployment is natural and expected. The unemployed individual finds work soon

Question 25

What is seasonal unemployment?

Answer 25

Seasonal unemployment is the number of people who only have jobs at certain times of the year. There will be a change in the demand for labour for certain occupations at different times of the year

Question 26

What are some of the impacts on firms of a rise in unemployment?

Answer 26

• Less upwards pressure on wages as firms can replace current workers with other workers willing to accept current wages
• Greater choice of employees making it easier to increase output
• There is less demand for products which means lower profits

Question 27

What are some of the impacts on workers of a rise in unemployment?

Answer 27

• Workers have less bargaining power for wages
• There is less job security and confidence
• More leisure time for those unemployed
• If unemployment is long term workers may lose skills and find it harder to gain work in the future. This is known as hsyterisis

Question 28

What are some of the impacts on the government/economy/society of a rise in unemployment?

Answer 28

• Less inflationary pressures due to less AD and reduced need to raise wages
• Less imports due to lower incomes improving the current account of the balance of payments
• A budget deficit is likely due to higher spending on unemployment benefits
• Greater inequality and higher crime rates
• Possible emigration