UNEMPLOYMENT Flashcards
what is the definition of unemployed
unemployed refers to people of working age who are without work but are willing and able to work.
why does demand deficient unemployment exist.
assuming that the economy was initially at full employment (Yf), when there is a decrease in AD it means that firms are unable to sell current levels of output. while they may be prepared to build up stocks of inventory, sooner or later they are forced to cut back on production. since labour is a derived demand, less labour is employed and national income drops as a result, kickstarting the reverse multiplier process where NY decreases from Yf to Y4 and Yf-Y4 signifies the demand-deficient unemployment that is present
why does structural unemployment happen
- When there are changes in the method of production such as new tech and techniques of production, it allows for the same output with fewer workers. This causes certain jobs and skills to become obsolete and profit-motivated firms will retrench workers as a result. these retrenched workers may face occupational immobility if the skillsets they possess are not in demand to take up jobs in other sectors of the economy
- globalization - when globalization occurs, for industries especially the labor-intensive ones, developed countries which used to have a comparative edge compared to undeveloped countries can no longer compete with them due to the rising labour costs. with rising globalization, economies may also choose to restructure their economy to develop new industries. As a result, workers who don’t have the relevant skills to move are left behind.
- change in the pattern of DD
why does frictional unemployment occur
frictional unemployment occurs because of the time it takes for people who have just left a job or just entered the workforce to find a job. Due to imperfect information, job-seekers will not necessarily take up the first job that is offered to them but continue searching for a better one and likewise with employers and the first candidate for the job they receive. since workers are not fully informed of what jobs are available and what they entail while employers are unaware about all the candidates that are available, these people remain unemployed.
incentive problems - believe that tax and benefit system will reduce net income
why does the economy seek low unemployment in terms of HHs
The economy seeks low unemployment because low unemployment would mean that a small percentage of those seeking jobs are are without a job meaning that most have an income to have the purchasing power to consume goods and services which increases their material SOL and grants them utility. Additionally, jobs give workers a sense of accomplishment, financial stability and the ability to provide for others. A low unemployment rate means that there is less likely to be incidence of crime, gambling and alcoholism which occurs when people turn desperate. Hence a low unemployment rate also means that the environment the population lives in will be more safe and their lives more fulfilling so non-material SOL increases
why does the govt want low unemployment
The government seeks low unemployment rates because one of their macro goals is a favorable balance of trade and having low unemployment levels helps them to achieve it. With low unemployment rates, more people have a job and receive and income for it, allowing the govt to receive more from direct taxes in the form of income taxes. When people have the purchasing power to consume goods and services, the government also receives more in the form of services taxes. On top of that, the government is able to give out less unemployment benefits since less people require them now. Thus, the govts budget position which is given by T-G will improve since they spend less and receive more from taxes. This allows them to spend more on public goods with positive externalities as well as correct market failures by running campaigns increasing the material well-being of the population. There will also be less tax burden on the future generations
why does the govt want low unemployment - investments
The govt seeks low unemployment because a low rate of UNN improves business confidence as firms see a higher ROR in an economy where most people have a job. The decreased incidence of crime and demonstrations that comes with low unemployment makes the environment more conducive for investors. As a result, profit-maximising firms will be willing to carry out more units of investment since the ROR is higher. This means that I increases and the capital stock of the country is likely to grow. Additionally low unemployment means that locals have the opp to practice skills and keep them up to date. This preserves the level of human capital and maintains productivity levels. Hence, there will be an increase in productive capacity that can lead to sustained economic growth
why does the govt want low unemployment - investments
The govt seeks low unemployment because a low rate of UNN improves business confidence as firms see a higher ROR in an economy where most people have a job. The decreased incidence of crime and demonstrations that comes with low unemployment makes the environment more conducive for investors. As a result, profit-maximising firms will be willing to carry out more units of investment since the ROR is higher. This means that I increases and the capital stock of the country is likely to grow. Additionally low unemployment means that locals have the opp to practice skills and keep them up to date. This preserves the level of human capital and maintains productivity levels. Hence, there will be an increase in productive capacity that can lead to sustained economic growth
