Macro L9 Flashcards
Causes of unemployment:
- Frictional
- Seasonal
- Structural
- Cyclical/Demand-deficient
- Real wage/Classical
Frictional unemployment:
Short term transitional unemployment due to people moving between jobs
In what type of economy is there bound to be frictional unemployment?
Mixed economy
What factors affect the time period of frictional unemployment?
- Less job info available to workers, longer the period
- Higher level of unemployment benefits, longer the period
- Efficiency of labour markets
Seasonal unemployment w/ example:
Some workers work on a seasonal basis eg. tourist industry
Structural unemployment:
Demand for labour is less than its supply in an individual labour market in economy
When does seasonal unemployment tend to rise and fall?
- Rise in winter
- Fall in summer
Types of structural unemployment w/ examples:
- Regional eg. South –> full employment, North –> consistent unemployment
- Sectoral eg. focus from manufacturing to services
- Technological eg. workers replaced by tech
Cyclical/Demand-deficient unemployment:
Unemployment that occurs when there is insufficient AD for all workers to be employed
Why does this occur?
- Economies tend to experience business cycles
- Cycles are movements from boom to recession over time (currently not a boom)
Real wage/Classical unemployment:
Real wages are deliberately maintained above the level that’s needed to reduce unemployment
Causes of real wage unemployment:
- Minimum wages –> unemployed workers cannot get a job as employers aren’t legally allowed to pay workers less and hire more ppl
- Unemployed workers refused to take low paid jobs as they receive more from welfare benefits
What could possibly solve structural unemployment?
- Making it easier to get cheap rented accommodation in areas of low unemployment to help workers in areas of higher unemployment to move
- Better retraining of workers
1 conflict between one of the macroeconomic objectives + current account surplus
Economic growth tends to rise due to consumption/gov spending, which leads to increased demand in imports and greater current account deficit
Diagrams representing unemployment:
1) PPF (point inside curve)
2) LRAS curve is to right of SRAS and AD equilibrium
3) LR trend rate of growth graph (negative output gap)
1 conflict between one of the macroeconomic objectives and inflation
High economic growth is associated with low unemployment, however this increases inflationary pressures
Gov deficit:
Spending more than gov revenue earned from taxation
How is cyclical unemployment shown to be restored on the LRAS curve and explain this concept
- AD curve shifts to right
- Demand is now sufficient cancel demand-deficient unemployment (cyclical)
How is cyclical unemployment shown to be restored on the LR trend rate growth graph?
Move to positive output gap by shifting upwards
What positive impacts does migration have on employment?
- Spending of foreign workers creates further jobs in UK
- Employment increases, unemployment remains same
What negative impacts does migration have on employment?
- Depresses wage rates, especially in low wages
- Greatly impacts UK workers with few skills
Features of immigrants that are suitable for increased employment levels:
- More likely to be employed
- Less likely to claim benefits
- Maj of immigrants come to work & of working age
- Work skills
- Prepared to work for low wages
Why are wage rates depressed as a result of greater net inward migration?
- Supply of labour is increased
- Equilibrium price of labour decreased, reducing wage rate
What features of an immigrant means UK workers with low skills are greatly impacted by more migration?
- Have work skills
- Prepared to work for low wages
What does the UK economy have to continue doing to maintain its employment levels?
Increase skills of its workforce over time
When do problems occur in terms of employment and what must happen as a result?
- Skills required by jobs do not match those of job seekers, which may result in long-term unemployment
- Some firms do not even train workers so gov has to step in to correct this market failure
