Macro (new)

Question 1

Structural unemployment

Answer 1

• Long term decline in demand which costs jobs
• Worsened by the geographical and occupational immobility of labour (if workers don’t have transferable skills to move to another industry or if it’s not easy to move where jobs are available) then they are likely to remain unemployed in the long run
• Globalisation can impact as production in manufacturing sectors moves abroad to countries with lower labour costs
• Technological change - as workers began being replaced by machinery

Question 2

Frictional unemployment

Answer 2

• Is the time between leaving a job and looking for a job
• Common for there to always be some frictional unemployment + not damaging since it is only temporary e.g. time between graduating and finding a job
• Rare to get full employment as people are always moving between jobs

Question 3

Seasonal unemployment

Answer 3

• Occurs during certain points in the year (usually summer or winter)
• E.g. during the summer more people will be employed in the tourist industry when demand increases

Question 4

Cyclical unemployment (demand deficiency)

Answer 4

• Caused by a lack of demand
• During economic decline or recession
• Firms are forced to close or make workers redundant as profits are falling due to decreased consumer spending + need to reduce costs —> causes output to fall
• Also caused by increases in productivity (each worker produces a higher output) + fewer workers are needed to produce the same quantity

Question 5

Real wage inflexibility unemployment

Answer 5

• Wages above the market equilibrium may cause unemployment
• Classical economists argue that by letting wages fall to their equilibrium level there would be no unemployment + by letting wages to be flexible + removing trade union power + removing NMW wages could fall and unemployment would fall to 0
• However, cutting wages during times of weak consumer spending would cause further falls in consumer spending + lower economic growth
• Moreover, classical economist argument assumes there is a perfectly competitive market which it not true in reality

Question 6

Significance of migration for employment/unemployment

Answer 6

• Migrants are usually working age so many are looking for a job
• Bring high quality skills to the domestic workforce —> increases productivity + skill set + global competitiveness
• Affects the wages of the lowest paid by bringing them down (because migrants are usually from economies with lower averages wages than the UK NMW) + however impact is small