MACRO Unemployment Flashcards
Define unemployment
The number of people willing and able to work at the market wage rates but unable to find jobs
HOW WE MEASURE UNEMPLOYMENT
1) Claimant count- The number of people claiming
job seekers’ allowance
(2) Labour Force Survey-a survey is taken of
60,000 households to establish how many people are not working but have looked for work in the past 4 weeks and available in the next 2 weeks
What are the different types of unemployment
- Frictional
- Structural
- . Cyclical
- Seasonal
- Classical
Describe frictional unemployment
• Transitional unemployment- the time lag between finding a job and actually starting it
• Short term
• Voluntary
Geographical immobility of labour-you cannot move regions
• Family ties
• Imperfect info
• Costs-moving
• North south divide
Occupational immobility-you cannot move due to skills
•Mismatch of skills
•May need to re-train first
•Restrictive practices eg higher qualifications
Describe structural unemployment
• A mismatch of skills resulting from a decline in some industries and these skills are not needed anymore
• Long term, involuntary
• Industries decline;
Changing demand eg coal mining
. Uncompetitive- eg steel, cotton
• Technological unemployment
• Mechanisation - uses labour eg hospital equipment
• Automation- robots replace labour eg car industry
Describe cyclical unemployment
Unemployment occurs due to a lack of AD in the economy
• Keynes- if low AD is persistent it can lead to mass unemployment or a higher accepted level of unemployment unless there is intervention
• Long term and involuntary
• Free market - short term, self-correcting as long as prices and wages are flexible
• Markets will return to equilibrium without intervention
Describe classical unemployment(REAL WAGE THEORY)
• When real wages are stuck above the market equilibrium rate.
• Free market-as long as the labour market is highly competitive, classical unemployment will be temporary and voluntary. Market forces will bid down the real wage rate until equilibrium is restored.
• Keynes- it is TU power/legislation which leads to wage inflexibility or
‘stickiness’ upon which labour has no control.
COSTS OF UNEMPLOYMENT
• Loss of income
Unemployment normally results in a loss of income.
The majority of the unemployed experience a decline in their living standards and are worse off out of work.
• Negative multiplier
The closure of a local factory with the loss of hundreds of jobs can have a large negative multiplier effect on both the local and regional economy.
One person’s spending is another’s income so to lose well-paid jobs can lead to a drop in demand for other goods and services
• Loss of national output
Unemployment involves a loss of potential national output (i.e. GDP operating well below potential) and is a waste of scarce resources..
When unemployment is high there will be an increase in spare capacity - in other words the output gap will become negative and this can have deflationary forces on prices, profits and output.
• Fiscal costs
The government loses out because of a fall in tax revenues and higher spending on welfare payments for families with people out of work.
• Loss of skills
Due to being out of work.
For example they miss out of training on new computer technologies.
Especially if structural
• Effects on exports
Workers become used to not working and develop a lifestyle that is dependent upon benefit payments. Or fall into ‘benefits trap’
• Social costs
Rising unemployment is linked to social deprivation.
For example, there is a relationship with crime and social dislocation including increased divorce rates, worsening health and lower life expectancy.
• Regional long term effects
BENEFITS TO RISING UNEMPLOYMENT?
• Reduces inflationary pressure - demand pull
• Increases the pool of workers looking for jobs
• Increases incentive to set up own business to create more opportunities
• Firms are not subject to huge wage rises so keeps costs low - so no cost push inflation
• BOP deficit reduces as less MPM
