Measure of economic performance p2 Flashcards
What is Seasonal unemployment?
Some employment is strongly seasonal in demand. For example, industries such as tourism are only prominent during certain times of the year so demand large of workers at a specific times. Once that time of year is passes then the labour force is drastically reduced.
What is Cyclical unemployment?
Cyclical unemployment occurs when there is is general lack of demand of goods and services within a country. This is also known as the Keynesian ‘demand deficient’ unemployment.
Why does cyclical unemployment occur in a recession?
In a recession, there is rising unemployment because of plant closures, business failures and an increase is worker layoff and redundancies. This is due to a decrease in demand causing business to cut employment in order to control costs and restore some of their profitability.
What is real wage inflexibility?
Real wage inflexibility is unemployment considered to be the result of real wages being above the market clearing level leading to an excess supply of labour.
What do some economists believe that the minimum wage risks creating unemployment in industries?
Some economists believe that the minimum wage risks creating unemployment in industries where international competition from low-labour cost producers is severe. However, there is relatively little evidence that the minimum wage has created rising unemployment on the scale that was feared.
What is the benefit net inwards migration for the UK?
An increase in net inwards migration tend to leads to increased jobs,
Since the 1990s, the UK has seen a large increase in immigration from mainly Eastern European countries.
These immigrants usually come to the UK to work and often take lower skilled jobs.
Due to the circular flow of income, immigrants’ spending creates jobs and total employment increases without an increase in unemployment.
However, this depends on how much money immigrant workers send home (remittances).
What are the positive and negative effects of net inwards migration for the UK?
-An increase in net inwards migration tends to lead to lower wages, particularly for lower-paid, low skilled jobs.
-UK firms are able to recruit foreign workers meaning that supply of labour is increased and so the price equilibrium of labour is reduced.
-There is now more competition for jobs and UK workers who have low motivation to work and low skilled are most affected as they are competing in the job market with hard working, more skilled workers prepared to take the same jobs as them. However, the impact of this is only small and middle-higher income wages are rarely affected.
Why is migration important for maintaining the UK’s employment levels?
For the UK to maintain its employment levels, it needs to increase the skills of its workforce over time. If structural unemployment occurs (which is caused by a lack of, or the wrong skills), firms may be reluctant to train unemployed workers as it is expensive. Therefore, migrant workers may fill these shortages if their skills are compatible.
What are the impacts of unemployment on workers?
-Those who are made unemployed have a loss of income which usually results in a decline in their living standards.
-They often suffer from the stigma of being unemployed and feel degraded by the process of signing on to receive benefits to support their family. This can lead to stress, marital breakdown and even suicide.
-The long-term unemployed often find it more difficult to get another job as they lose skills.
What are the impacts of unemployment on firms?
-Firms will usually experience a decrease in the demand for their goods and this could lead to a fall in profit. However, this depends on the YED.
-Long term unemployment can lead a loss of skills and reduce employability of workers, so firms have a smaller pool of skilled people to employ.
-They can offer lower wages as people will take the job anyway because there know there is a lack of jobs so have few options.
What are the impacts of unemployment on consumers?
-Consumers in areas of high unemployment are negatively affected because shopping centres tend to be run down and don’t offer range of shops available to those in areas of low unemployment. This leads to consumers experiencing a reduction in the quality and choice of goods/services.
-Firms may lower prices and put on sales in order to increase demand for their product.
What are the impacts of unemployment on the government?
-Those who are unemployed have a loss of income and in turn a lower standard of living. This results in fall in tax revenue and higher spending on welfare payments for families with people out of work. This will incur an opportunity cost as the money could be better spent elsewhere (e.g. education).
This will also result in a budget deficit. It will be likely that the government will have to raise taxation or scale back plans for public spending and merit goods, such as the NHS or education. Therefore, the government may need to increase borrowing.
What are the impacts of unemployment on society as a whole?
(the macroeconomic effect)
-Rising unemployment is linked to social deprivation. Social costs tend to rise due to the unemployed.
-It results in a loss of potential national output and represents an inefficient use of scarce resources. If people choose to leave the labour market permanently, then this will have a negative impact on LRAS and and therefore damage the economy’s growth potential. Therefore, the country is unable to achieve their desired PPF.
What is the balance of payments?
The balance of payments is a record of all financial dealings over a period of time between economic agents of one country and all other countries.
Imports = outflow of funds from a country.
Exports = inflow of funds into a country.
What are the components of the balance of payments?
The balance of payments is made up of the:
Current account, which records payment for the purchase and sale of goods and services.
Capital and financial account, which records flow of money associated with saving investment, speculation and currency stabilisation.
