Unemployment

Question 1

Define unemployment

Answer 1

When an individual is actively searching for a job but is unable to fine one

Question 2

What is the unemployment rate?

Answer 2

of unemployed/ labour force * 100

Question 3

What are difficulties in measuring unemployment?

Answer 3

1. Population includes discouraged workers
2. Underemployed people are involuntarily part-time workers that want to work full hours
3. Some may intentionally conceal their true natural of employment in fear of losing unemployment benefits
4. Some are involved in illegal activities
5. Does not reveal inequalities between

Question 4

What are economic costs of unemployment?

Answer 4

Lost output
Lower tax revenues and high government expenditures
Rising income inequality
Erosion of human capital

Question 5

What are the personal costs of unemployment?

Answer 5

Loss of income and in some countries,  of health insurance
Erosion of skills 
Family breakdown 
Debt accumulation 
Alcohol/drug abuse
Deterioration of mental health

Question 6

What are the social costs of unemployment?

Answer 6

Higher rates of violence and crime
Social costs of drug and alcohol abuse
Longer-term social and political problems

Question 7

Define seasonal unemployment

Answer 7

Unemployment that is particular to the time of the year

Question 8

What is seasonal unemployment caused by?

Answer 8

Weather patterns
Seasons of flowering of crops
Tourism

Question 9

Define frictional unemployment

Answer 9

Refers to individuals in-between jobs. It is a type of unavoidable unemployment as people are constantly in search of between employment opportunities.

Question 10

Define cyclical unemployment

Answer 10

Unemployment that is a result of insufficient AD. Cyclical unemployment rises as an economy moves into recession

Question 11

Draw the diagram for cyclical unemployment

Answer 11

See notes

Question 12

How can governments combat cyclical unemployment?

Answer 12

By using demand- side policies to increase AD

Question 13

Define structural unemployment

Answer 13

Unemployment that is a result of a mismatch between the skills that the unemployed possess and the skill that firms require, or, as a result of labour market rigidities

Question 14

Describe the situation of structural unemployment

Answer 14

Where job vacancies exist but the skills of the unemployed are not sills the employers demand
Mismatch can also be geographic

Question 15

What do market rigidities refer to?

Answer 15

Labour market rigidities and regulations that do not permit the labour market to adjust to changing labour demand and labour supply conditions. ie minimum wage

Question 16

What are other labour market rigidities that lead to structural unemployment?

Answer 16

1. High non-wage labour costs that burden businesses
2. High money wages achieved by powerful labour unions
3. Laws that guarantee job security aiming at protecting workers
4. High unemployment benefits

Question 17

How do governments reduce structural unemployment?

Answer 17

Governments offer training or may subsidize tax breaks to firms

Question 18

Define the natural rate of unemployment

Answer 18

The level of unemployment that exists when the country is at its potential level of real output and the labour market is in equilibrium