Unemployment

Question 1

What is frictional unemployment?

Answer 1

Related to the process of changing jobs which may involve a period out of work

Question 2

What is cyclical unemployment?

Answer 2

Category of unemployed whose number varies according to the business or econ cycle (demand deficient unemployment)

Question 3

What is structural unemployment?

Answer 3

Where there is a mismatch between the skills of the cremployed and the required skills. (Change in structure of the economy)

Question 4

What is classical/real wage unemployment?

Answer 4

A rise in real wages above the market clearing level causes a contraction in labour demand and lower employment

Question 5

What is hidden unemployment?

Answer 5

Unemployment known to exist but is not included in official govt figures

Question 6

What is seasonal unemployment?

Answer 6

Certain times of the year unemployment increases in certain markets

Question 7

What are the policies to deal with unemployment?

Answer 7

• expansion of apprenticeship schemes
• improving geographical mobility of labor
• active regional development policies
• targeted macro stimulus policies to boost growth

Question 8

Why does high unemployment matter? (Fiscal costs)

Answer 8

• less tax revenue eg income vat council corporation etc
• higher welfare (lose job = increase welfare)

Question 9

Why does high unemployment matter? (Economic costs)

Answer 9

• lost output (waste of resources)
• lower gdp growth (lower living standards)

Question 10

What is geographical immobility?

Answer 10

Vacancies in another location

Question 11

What is occupational immobility?

Answer 11

Don’t have the correct skills for a job

Question 12

What is Says Law?

Answer 12

Supply creates its own demand

Question 13

How does someone become structurally unemployed?

Answer 13

A change in the structure of the economy e.g. Declining industry

Question 14

What could a change in structure of the economy also be due to?

Answer 14

Overseas competition where another country gains a comparative advantage (lower opportunity costs)

Question 15

Why would unemployment continue ?

Answer 15

Immobility of labor

Question 16

Why does the supply curve start to curve backwards?

Answer 16

• workers begin to work less because this have the ability to maintain standard of living with less hours
• more income is taken from income tax so they work less hours.

Question 17

What is natural employment?

Answer 17

Where no one is cyclically unemployed, there is only voluntary unemployment where people are choosing to not work

Question 18

What is the short Run?

Answer 18

When spare capacity exists in an economy

Question 19

What is the long run?

Answer 19

When no spare capacity exists in the economy

Question 20

What did Phillips find?

Answer 20

In the short run there is a trade Off between unemployment and inflation however in the long run there is no trade Off

Question 21

What did Phillips find?

Answer 21

In the short run there is a trade Off between r’employment and inflation however in the long run there is no trade Off

Question 22

What does scarce mean?

Answer 22

Demand for it is greater than the supply

Question 23

What is the process of the LR Phillips curve?

Answer 23

1 - the economy is at position A at congrun equilibrium, unemployment is at 6% and inflation is at 0%
2 - AD is stimulated and shifts outwards to AD1. The economy is now at position B
3 - At B unemployment has fallen to 4% and the price level has risen
4 - as firms have more workers to meet the increased demand, costs rise
5 - firms costs are rising due to scarcer factors of production
6 - so SRAS shifts inwards to SRAS 1 and now were at C
7 - the move to C leads to a rise in unemployment (bad) and a rise in PL (also bad) so no track of in the LR
8 - at C we’re back at 6% employment and 0% inflation (prices have stopped
Rising)
9 - increasing supply side policies for the natural rate of unemployment which causes LRAS to shift outwards to LRAS 1

Question 24

How is it possible to go beyond capacity?

Answer 24

1. Overtime (only 24 hours in a day therefore its limited)
2. Import (bad for bop)
3. Use only leftover stock from previous years (eventually gets sold)
4. NRU take up work (then lose jobs due to the LR Phillips curve)

Question 25

What are the factors affecting the size of the NRU?

Answer 25

• Level of welfare benefits
• level of income tax in the economy
• level of wage controls in operation and other restrictions on the operation of the market
• trade union power and militancy
• degree of labour mobility
• rate of change in the economy and ability of workers to adapt to these changes
• social attitude and institutions