Theme 2.1.3

Question 1

Consequences of high unemployment

Answer 1

• lost output, slower growth
• high long-term unemployment can worsen income quality
• labour market failures

Question 2

Economic cost of High Unemployment

Answer 2

• lost output and productivity
• reduced consumer spending
• lower tax revenue
• Increased govt spending on welfare benefits

Question 3

Social costs of high unemployment

Answer 3

• decreased self-esteem
• reduced social mobility (up the social ladder)
• Increased inequality (income…)

Question 4

Long Term Unemployment

Answer 4

• people who have been unemployed for more than 12 months
• skills worsen due to inactivity

Question 5

Mass Unemployment

Answer 5

• officially 1 person in 10 in the labour force is out of work

Question 6

Youth Unemployment

Answer 6

Measured unemployment rate for all 16-24 year olds.

• relatively high: lack of experience/training, age discrimination, economic downturns (young people are almost the first to be laid off)

Question 7

Discourage workers

Answer 7

Inactive work-seekers

Question 8

Hidden unemployment

Answer 8

Number of people who do not have work but are not counted in govt reports. E.g. people who have stopped looking for a job or people who work less than they want to.

Question 9

Underemployment

Answer 9

• Looking for an extra job or actively looking for a new job with longer hours
• under-utilised workers in terms of their abilities

Question 10

Economic inactivity

Answer 10

People of working age not in employment and who have not been actively seeking work within the last 4 weeks.

Main reasons: students in full-time education, looking after family, long-term sickness, discouraged workers

Help reduce: improving financial incentives, investment in human capital and labour market flexibility.

Question 11

Causes of unemployment

Answer 11

Seasonal, frictional, structural

Question 12

Keynesian (cyclical, demand-deficient)unemployment

Answer 12

Economy as a whole is in recession.
A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP.

Question 13

Real wage/ Classical Unemployment

Answer 13

Caused because of the fact that real wages are stuck above the level needed to decrease the unemployment rate. (Higher cost than revenue)

Question 14

Measuring unemployment

Answer 14

• claimant count: number of people asking for benefits (main mesure of UK unemployment until 1997)
• LFS/ILO: Labour Force Survey statistics. (Big questionnaire which covers economic activity as well as household structure,…—> measure of unemployment is based on International Standard)