Unemployment Flashcards
Define demand deficiency/cyclical unemployment
When there is a lack of demand for goods and services and it usually occurs during period of economic decline or recession
Firms are either forced to close or make workers redundant because their profits are falling due to decrease in consumer spending and they needs to reduce their costs
This then causes output to fall in several industries
Could be caused by increases in productivity as each worker can produce at a higher output and therefore fewer workers are needed to produce the same quantity if goods and services
What is the distinction between the unemployed and underemployed?
Unemployed is those who are able and willing to work but are not currently employed, but are actively seeking work and usually looking to start within the next weeks
Underemployed - Those who have a job but their labour is not being used to their full productive potential. Those who have a part-time job but are looking for a full-time job are also underemployed.
Effect of unemployment on consumers
- less disposable income
- standards of living decrease
- psychological consequences of losing a job - toll on mental health
Effect of unemployment on firms
High rate of unemployment means firms have larger supply to employ labour from, causes wages to fall which helps firms to decrease their costs
However…
High rate of unemployment means consumers have less disposable income, consumer spending falls and firms lose profit
Effect of unemployment workers
There is a waste of workers’ resources. They could lose their skills if they aren’t fully utilised
Effect of unemployment on government
- less tax revenue from income tax
- government spending on JSA - opportunity cost as money could be spent on something else like education
- less revenue from indirect taxes on expenditure
Effect of unemployment on society
Negative externalities in the form of crime and vandalism if the unemployment level increase
