Unemployment Flashcards
labor force
The total number of people who are of working age, and able and willing to work
What is the natural rate of unemployment in the UK
5-6%
Define natural rate of unemployment
The unemployment that still exists despite the economy operating at a positive output gap
factors affecting natural unemployment
- Availability of job information
- The level of benefits. Generous benefits may discourage workers from taking jobs at the existing wage rate.
- Skills and education. The quality of education and retraining schemes will influence the level of occupational mobilities.
- The degree of labour mobility
- Hysteresis. A rise in unemployment caused by a recession may cause the natural rate of unemployment to increase. This is because when workers are unemployed for a time period they become deskilled and demotivated and are less able to get new jobs.
3 reasons why unemployment is bad
- Waste of factors of productions-> productively inefficient
- Unemployment benefits are expensive for the government and this creates opportunity cost
- lower standard of living
2 ways how employment is measured
Labour force survey- asks 40,000 households if they are employed
Claimant count- number of people who receive the job seeker allowance
How do you solve frictional unemployment
create more job centre
New housing affordable
Infrastructure - smart motorways
How do you solve cyclical unemployment
increase AD
What is real wage unemployment
When wages are set above the equilibrium (too high) meaning business can not afford to employ another worker causing there to be an excess supply in workers
How do you solve real wage unemployment
weaken trade unions
What is structural unemployment
the mismatch between skills workers have and the skills firms desire. This can often include geographical unemployment
Social effects of unemployment
It can lead to a person lacking confidence, motivation and self worth. In some cases it can lead to depression.
Why is unemployment desired
- higher incomes
- better use of factors of production
- less money needed for benefits
what is a recession
A fall in real GDP for two or more consecutive quarters
cyclical unemployment chains of reasoning
- cyclical unemployment–> less domestic demand so firms may scale down expensive production to maintain profit—>lower incomes—> more poverty—-> increased government spending
Evaluation of recessions
- A recession may be due to a rise in population. If population was rising at 1% per year and GDP was increasing at 0.5% it would suggest GDP per capita as falling
causes of a recession
- economic shock such as natural disaster or terrorist attack
- high interest and taxes
cyclical unemployment
unemployment caused by a fall in demand
how can governments solve structural unemployment
- better and more accessibly training
EG there has been £2.7 billion spending on apprenticeships according to the autumn spending review. - make housing cheaper in areas where there is high economic activity (London)
evaluation of the government offering vocational training funding
- It will be costly and there is a danger firms could make current workers redundant to benefit from the employment subsidies
what is the poverty trap
when people choose not to work as being on unemployment benefits is more profitable
3 policies to reduce poverty
- welfare benefits and progressive tax
- minimum wage
- direct provision of goods (free healthcare, education and subsidised housing)
what does the Phillips curve show
it shows there is an inverse relationship between inflation and unemployment
EG there is high unemployment and low inflation
what does a shift out in the pc represent
outward shift in AS
what does a movement along the pc represent
a change in AD
natural rate of unemployment
the rate of unemployment that exists when there is no cyclical unemployment
evaluation to offering training to the structurally unemployed workforce
those over 55 may be pessimistic to learn new skills as they may be close to retirement or closed minded to the idea.
this argument in particularly relevant to the UK as we have an ageing population
what’s the main purpose of economic activity
to satisfy wants and needs
how to calculate the multiplier using GDP
change in GDP/change in injections
GDP on ice
how else can you calculate the multiplier using MPC or leakages
1/1-mpc
(consuming always takes away from 1)
or
1/marginal propensity to withdraw
(change in leakages)
Evaluation of increasing AD to combat cyclical unemployment
- may create a conflict with inflation
2. depends on what type of unemployment that the economy is suffering from.
Costs of unemployment
Loss of income for unemployed Less tax revenue and high gov borrowing Loss of human capital Inefficient use of resources Social problems
