Topic 2.3 - Employment Flashcards
What is unemployment?
Proportion of population who don’t have a job but are actively seeking employment
How do you work out the unemployment rate?
Unemployed/labour force x 100
What is meant by the policy objective of full employment?
Situation where unemployed are active and able to work and find employment (at going wage rates)
Maximise production and use of scarce resources
Doesn’t mean that unemployment will be 0
What are the two ways that unemployment is measured?
Claimant count (CC) Labour force survey (LFS)
How is unemployment measured, claimant count?
Add up people on benefits/job seekers allowance
Counted monthly
How is unemployment measured, labour force survey?
Measures % of workforce who are without jobs but are available for work
It uses the international labour organisation definition of unemployment
- “people without a job, want a job, sought work in last 4 weeks, available to start in 2 weeks”
Measure used officially in UK
Published by ONS every month
What is frictional unemployment?
People who are classed as unemployed when moving between jobs
Doesn’t mean economy is weak - could be moving to a better job
Short term
What is structural unemployment?
Arises due to a change in pattern of economic activity within an economy
May be deindustrialisation, leaves some workers unemployed and unable to find work in new industries with different skill requirements
(Occupational immobilities - changes in economy lead to shift in demand for skilled labour, older may not feel able to/find it difficult to learn new skills)
Harder to fix, most damaging
Long term
What is cyclical unemployment?
Due to period of negative economic growth or slowdown in economic cycle
Tends to rise sharply in recession
Not as bad as structural
What is demand deficient unemployment?
Deficiency of AD in the economy
Workers made redundant to reduce output in response to less demand from consumers
Damaging as workers from similar industries or regions lose jobs at same time
Short run
What is seasonal unemployment?
People unemployed at particular times of the year when demand is lower than usual for labour
Short term
What is wage rate inflexibility?
Wage rates are inflexible
They’re reviewed each year so theres inflexibility in between
Slow at responding to changes in supply and demand
What is voluntary unemployment?
Workers choose not to work
May be due to current wages or early retirement
Wages not easily changed so people end up staying out of work
What is the natural rate of unemployment?
Rate of unemployment when labour market is at equilibrium, in a healthy economy, full employment level
Proportion of workers who are voluntarily unemployed
What are the consequences of unemployed workers/households? (7 points)
- need to rely on social security support
- foregone earnings/income
- less personal wealth, lower standards of living
- health issues - poor diet, stress
- marriage problems
- lack of sense of purpose/loss of dignity
- poverty - children effected, fewer educational tools, lower expectations
What are the consequences of unemployment to society? (4 points)
- lost output
- waste of resources
- within PPC, not full capacity, not efficient
- lower material standards of living
What are the consequences of unemployment to the government? (3 points)
- lose tax revenue
- increased spending on benefits
- pressure on gov spending - healthcare, crime, marital breakups (opportunity code, money could be spent elsewhere)
What are the consequences of unemployment to firms? (2 points)
- sell less = less profit
- negative multiplier effects
What is the hysteresis effect?
Happens when a sustained period of low AD can lead to a permanent damage to the supply side of the economy
Employers less willing to take on workers
Employees may be discouraged
May increase costs on other society members through vandalism and crime
What are the costs of unemployment on other economies? (2 points)
Exports reduced (less bought if more unemployed) Increased immigration (people move to places with more opportunities)
What are the potential benefits of unemployment? (4 points)
More time to look for jobs/better jobs
Easier to recruit workers for firms who are expanding
Less pressure on wage increases
Improved efficiency of production/productivity
What does the effect of unemployment depend on? (3 points)
How many unemployed
Which type of unemployment - some worse than others
Opportunity cost of unemployment benefits
What is the GIG economy?
Money from apps
What is full employment?
Doesn’t mean 0 unemployment
Likely to be some frictional
When theres no demand deficient or cyclical unemployment
Where all who are willing and able to work are employed
What are the positive effects of full employment? (4 points)
Achieve potential output in the economy
Avoids negative consequences of unemployment
Improves business and consumer confidence
Reduces gov welfare spending (benefits), more income tax so better budget position
What are the negative effects of full employment? (3 points)
Vulnerable to demand pull inflation when at full capacity
Full employment may lead to wage inflation, which can lead to cost push inflation
Attempts to achieve full growth may lead to booms in economic cycle, unsustainable
Evaluating the consequences of achieving full employment
Depends on:
Whether growth is sustainable, is sustainable doesn’t have to be inflationary
Skills of the work force
Measure of full employment may not be a true representation of whether economy is at capacity - may be part time, doesnt include discouraged workers
