Unemployment

Question 1

Unemployment

Answer 1

When people who are willing and able to work cannot find a job

Question 2

Employment

Answer 2

People who are either working for a firm or self-employed

Question 3

Labour Force

Answer 3

All people that are employed or unemployed
- people that could possibly be working and economically active

Question 4

Economically inactive

Answer 4

People who are of working age but are not looking for a job

Question 5

Full employment

Answer 5

Individuals that are willing and able to work at going wage rates are able to find a job

Question 6

Unemployment rate

Answer 6

Percentage of the labour force who are unemployed
- (number of unemployed / workforce) x100

Question 7

Labour force participation rate

Answer 7

Percentage of the working age population in the labour force employed or unemployed
- (labour force / working age population) x 100

Question 8

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Labour Force survey

Answer 8

• the ONS carries out a survery to 60,000 households every year, with options to describe if in or out of work

Advantages:
- people are legally obliged to fill it in so will have a high turnout
- very likely people are going to be honest as it is anonymous
- allows for international competitiveness
- includes people who are on the claimant count

Disadvantages:
- small samples are not very accurate
- time consuming

Question 9

Claimant count

Answer 9

• measures the number of people who are claiming job seekers allowance

Advantages:
- quick, easy, cheap
- very often collected
- looking at everyone not just a sample

Disadvantages:
- may feel embarrassed that they have to claim so may not
- not everyone who is unemployed has job seek allowance
- can’t make international comparisons as other countries may not have a welfare state or benefits

Question 10

Cyclical unemployment

Answer 10

• caused by a period of negative growth
• so when there is a recession demand for goods and services decreases
• less output is produced so the derived demand for labour decreases so unemployment increases

Question 11

Structural unemployment

Answer 11

• when there is a change in the structure of an economy some workers cannot find jobs as their skills are not transferrable
• can happen due to a decline in the industry workers
• technological advancements replace workers
• very specific areas such as the north as more rural area
• exacerbated due to occupational and geographical immobility as cant move for a new job
• can occur during high periods of economic growth or moving to the tertiary sector

Question 12

Seasonal unemployment

Answer 12

• when people are employed at a particular time of the year
• only problematic for low income households who may find it difficult pay for bills during once they are unemployed
• not so much a problem for business owners as they are still doing good even if there is no demand and can still pay for necessities

Question 13

Frictional unemployment

Answer 13

• the time taken between leaving a job and getting a new job so it is only short time
• frictional unemployment goals down during a recession as would rather have a job due to less jobs security
• stay in current job or take the first job offer to them and so only leave work if they have a job already

Question 14

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Search unemployment

Answer 14

When workers don’t take the first job offered to them and search around for a better suited job for them

Question 15

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Voluntary unemployment

Answer 15

• when individuals choose not to get a job at a going wage rate
• if income is higher when earning benefit, people will say it’s not worth it and would rather stay at home as don’t have to do anything
• higher benefits these incentivizes people to get jobs

Question 16

Consequences of unemployment

Answer 16

1. Lower tax revenue
- less incomes so the government collects less income tax
- if less consumption, s decreases so firms and less profit so cooperation tax decreases

2. Decreased standards of living
- less income so can’t buy as much goods and services
- may have to live off benefits which may not rise with inflation

3. Hysteresis
- the longer you are out of work the worst skills you lose and the more outdated they become so it is harder to find a job
- employees become more reluctant to higher people for jobs as they think they are low skilled and don’t want to train them
- leads to long-term unemployment which is more likely to happen to those who are structurally unemployed
- worse for low skilled workers as they lack transferrable sills
people stop looking for jobs and start relying on benefits

4. Government spending increases
- government spend more on benefits and sub can’t invest on other things such as infrastructure
- opportunity costs

5. Impacts other countries
- if unemployment increases, government will not be able to invest in other countries
- countries that export from the UK will be affected

6. Burden on other services
- as unemployment increases people are more likely to get illnesses or burden on NHS
- increased crimes so burden on police

7. Social costs
- more unemployment meaning increase in crime rates and more anti-social behavior
- intergenerational poverty as unemployed people who have children may also be impacted by unemployment

Question 17

Benefits of unemployment

Answer 17

1. Low levels of inflation
- AD shifts to the left and so output decreases and less pressure on price levels so reduced inflation
- beneficial for firms as workers less likely to demand higher wages as can now afford goods and services

2. Allows workers to gain transferable skills
- allows workers to move from one job to another and so gives time for them to look for new jobs and gain transferable skills
- allows them to improve their productivity for the future

3. Reduces firms costs
- wages are the biggest cost of production for firms so can pay less wages
- if lots of unemployment there’s a bigger pool of labor as there is more unemployed people to choose from
- these workers may be willing to work for lower wages so firms costs decreases
- make firms more competitive as lower prices

Question 18

What does the harms of unemployment depend upon?

Answer 18

1. How much unemployment
- if it is below 3% it is likely to be on the inelastic part of LRAS so any increase in unemployment isn’t detrimental as nearly reaching full employment
- high levels of unemployment is very bad for an economy as AD decreases and consumption decreases so AD shifts again so negative multiplier effect

2. Type of unemployment
- fictional is not so bad for an economy as will soon find a new job
- cyclical is very detrimental as it may mean staying in a recession
- structural is also bad as people don’t have transferable skills which can lead to long-term unemployment and suffering from hysteresis

3. Duration of unemployment
- depends upon how long unemployment lasts for
- if it is fictional unemployment it won’t last as long
- if cyclical have to wait only a few months
- short-term unemployment doesn’t matter if people have a high marginal propensity to save as will have enough money to cover them during unemployment

4. Distribution of unemployment
- particular goods may be more sensitive to unemployment especially structural unemployment
- regional differences in terms of unemployment worsens income inequality
- affects education in areas as can’t pay teachers so lower quality education
- can lead to intergenerational poverty

5. Benefits provision
- high levels of benefit provision means that the cost of unemployment may not be that high as can still consume needs and once
- however the incentivizes people to find jobs
- large opportunity cost for the government

Question 19

Benefits of full employment

Answer 19

1. Productive efficiency
- making the fullest uses of resources
- making as much output as possible
- operating on the ppf Curve

2. Improves fiscal position
- incomes increasing so government get more tax revenue
- government spending decreases as giving out less benefits

3. Higher materials of living
- people have more income and can now afford more goods and services
- meet their needs and wants so higher materialistic standards of living
- less poverty
- poverty is mainly caused by high unemployment rates

4. Actual growth turns to potential growth
- actual growth = how much an economy is growing now
- potential growth = the place where an economy could potentially grow towards
- as reach full employment, wages increase, incomes increase, consumption increases, AD increases, profit increases so now firms are more incentivized to invest in capital
- may also invest in labor training to make workers more productive as labor is now difficult to find due to full employment
- shifts the LRAS curve so non-inflationary growth

5. Assist improvements in development
- government have more money from increased tax revenue and so may use it to invest in welfare
- improves economy further

Question 20

Consequences of reaching full employment

Answer 20

1. Purely inflationary
- the economy reaches full employment so any increase in AD is bad as output does not increase but prices continue to increase
- AD reaches the innelastic part of the LRAS

2. Impacts International competitiveness
- prices increase due to inflation and now goods in UK are more expensive compared to other countries
- decreases international competitiveness as imports increase due to domestic people buying from abroad so worse in net exports

3. Greater costs of production
- as reach full unemployment workers know that they cannot hire more workers as availability decreases
- workers may demand higher wages and firms will have to give them to keep them
- if firms want to hire new workers they may have to offer higher wages to incentivize these workers to join them

4. A fall in productivity
- as reach full employment workers may slack off as they know that they cannot be replaced so maybe less productive so output produce might decrease
- if there is high unemployment rates productivity increases

Question 21

What do the benefits of full employment depend upon?

Answer 21

1. The control of inflation
- depends on how inflation is controlled to increase productive capacity
- gov may put supply side policies to try to shift LRAS to increase non-inflationary growth

2. Quality of employment
- depends upon how productive the employment is
- full employment does not always mean they are very productive and that they have high wages
- workers may have a very low paid job which worsens income inequality

Question 22

In-work poverty

Answer 22

When a worker has a job but compared to other people their wage is much lower