Unemployment

Question 1

define unemployment

Answer 1

unemployment consists of those of working age who are willing and able to work, actively seeking a job, but who do not have a job

Question 2

what is working age

Answer 2

16 - 64

Question 3

what is the labour force survey

Answer 3

a massive survey conducted by the ONS, from the survey the ONS can work out the number of employed and unemployed people

Question 4

maning of inactive ppl

Answer 4

people who are of working age but are not willing to work

Question 5

unemployment rate equation

Answer 5

unemployed/ econmically active x 100

Question 6

what is the claimant count

Answer 6

the total number of people claiming unemployment benefits

Question 7

issues with the claimant count

Answer 7

• difficult to compare between countries, eg, some countries mightt not even have unemployment benefits
• not every unemployed person will claim unemployment benefits
• not every unemployed person CAN claim unemployment benefits
  
  • therefore the figure will always be lower than LFS
• could be subject to fraud

Question 8

issues with the labour force survey

Answer 8

Small Sample Size
- The survey only includes about 40,000 individuals out of a working-age population of 40 million.
- A small sample size may not adequately represent the diverse regional, demographic, and occupational characteristics of the workforce.
- The results might be skewed, leading to inaccuracies in measuring unemployment or other labor market trends.’

High Cost
- Conducting the survey and collecting data is expensive.
- Large-scale surveys require significant resources for interviews, analysis, and administration, limiting the frequency or scope of data collection.
- Budgetary constraints might restrict updates or improvements to the survey, potentially compromising the quality of insights.

Discouraged Workers (“Hidden Unemployed”)
- Individuals who stop seeking jobs due to long-term unemployment are not counted as unemployed.
- These discouraged workers, though willing to work, are categorized as economically inactive rather than unemployed under the survey definitions.
- Unemployment figures might underestimate the true level of labor market slack, painting an overly optimistic picture of the economy.

Exclusion of Certain Inactive Groups
- People like carers or those reliant on spousal income, though of working age, are excluded if they do not meet the formal definition of unemployment.
- These groups may still be economically significant or willing to work under certain conditions but are not reflected in unemployment data.
- The LFS may overlook structural issues in the labor market, such as the lack of support for carers or barriers to entry for certain demographics.

Margin of Error
Point: The unemployment rate has a margin of error of 1-3%.
Analysis: This variability can make small changes in unemployment figures statistically insignificant or misleading.
Impact: Policymakers and analysts might misinterpret trends or overreact to data that is within the margin of error

Question 9

what is the margin of error for unemployment

Answer 9

plus it minus 3%

Question 10

what are monetary policies

Answer 10

a demand side policy which involves changes to the interest rates, money supply and exchange rate by the central bank in order to change AD

Question 11

what is expansionary monetary policy

Answer 11

attempts to use monetary policy to boost AD, eg by lowering interest rates

Question 12

what is contractionary monetary policy

Answer 12

attempts to use monetary policy to reduce AD

Question 13

why would central banks use expansionary monetary policy

Answer 13

• to boost AD and raise demand pull inflation and hitting all macroeconomic targets
• increase growth
• reduce unemployment

Question 14

why would central banks use contractionary monetary policy

Answer 14

• to hit inflation target, eg if inflation is beyond the target and making macroeconomic stability
• to prevent excessive house prices and to prevent credit bubbles
• reducing excess debt and promoting savings
  -reduce current account deficit, AD falls, growth falls, income falls, lowering amount spent on imports

Question 15

interest rates will feed through a transmission mechanism, what does this mean

Answer 15

an interest rate cut by the central bank will work through various channels, affecting a variety of variables in the AD equation as it hits the real economy

Question 16

chain of analysis for expansionary monetary policies

Answer 16

Lowering Interest Rates
- decreases the cost of borrowing,incentivizes households and firms to take on loans for consumption and investment.
- boosts (AD), leading to higher economic growth and employment. Lower IR also discourage saving, further increasing spending.
- However, if the economy is close to full capacity, increased AD may lead to demand-pull inflation, reducing the real value of money.

Quantitative Easing (QE)
- Central banks purchase financial assets, increasing liquidity in the banking system and encouraging lending to businesses and consumers.
- This raises AD, stimulates economic activity, and supports price stability, especially during periods of low inflation or deflation risks.
- However, excessive QE can inflate asset prices, create bubbles, and widen wealth inequality, as wealthier individuals disproportionately benefit from rising financial asset values.

• Lowering Reserve Requirements
• Reducing the proportion of deposits banks must hold in reserve allows them to lend more money to consumers and businesses.
• This expands credit availability, leading to higher investment, consumption, and economic growth.
• However, it may increase the risk of financial instability if banks overextend credit to less creditworthy borrowers.

Weaker Exchange Rates
- Expansionary monetary policy often leads to depreciation of the currency, making exports cheaper and imports more expensive.
This improves net exports, contributing to AD growth and helping domestic industries.
- However, it risks retaliation in the form of currency wars, where other nations may devalue their currencies to maintain competitiveness.

Question 19

what are the types of unemployment which fall under disequilibrium unemployment

Answer 19

• cyclical unemployment (demand deficient unemployment) which is unemployment in a recession due to lack of AD
• real wave unemployment (classical unemployment)

Question 20

how would a fall in AD lead to higher cyclical unemployment

Answer 20

• labours demand comes from the demand of goods and services
• lower demand of goods and services = lower demand for labour
• this increases unemployment
• less AD , firms are not selling as much output, lower revenue
• to keep profit margins at a decent level, firms will look to cut costs, cutting labour costs involve sacking workers

Question 21

what is real wage unemployment

Answer 21

where wages are forced above equilibrium in the labour market, creating an excess supply of labour
- higher wage rate means firms are less willing and able to employ, so there is a contraction of labour demand but workers are very willing to work at higher wages

Question 22

how can real wage unemployment happen

Answer 22

• if governments increase minimum wage
• having strong trade unions that push wages up
• occurs when the real wage rate in the labor market is kept above the equilibrium wage rate, leading to a situation where there is an excess supply of labor (unemployment) compared to the demand for labor by employers.

Question 23

examples of equilibrium unemployment

Answer 23

• this is unemployment that can occur when the labour market is in equilibrium
• structural unemployment
• frictional unemployment
• seasonal unemployment

Question 24

what is structural unemployment

Answer 24

• immobility of labour due to a long term change in the structure of the industry
• immobility of labour can include occupational and geographical immobility

Question 25

what is frictional unemployment

Answer 25

• in between jobs, when a worker has quit their job and is in the process of looking for a better one

Question 26

what is seasonal unemployment

Answer 26

• when there is a temporary fall in demand for workers eg because of a seasonal change

Question 27

what is occupational immobility of labour

Answer 27

where there is a skills mismatch between skills a worker has and the jobs they are able to find with those skills

Question 28

what is geographical immobility of labour

Answer 28

when workers are not willing/able to move to where jobs exist, maybe because of personal preference, housing issues etc

Question 29

how might structural unemployment happen

Answer 29

Technological Advancements
- Advancements in automation can replace workers in physical or repetitive jobs, such as manufacturing.
- This reduces the demand for labor in these sectors, leading to unemployment for workers whose skills are no longer needed.
- Workers may face long-term unemployment if they cannot retrain or adapt to roles requiring new technical expertise.

Loss of Comparative Advantage
- A country may lose its edge in producing certain goods due to global competition or resource depletion, leading to a decline in demand for specific industries.
- This forces businesses in these industries to downsize or close, leaving workers unemployed, especially in sectors heavily reliant on exports.
- Affected regions may experience economic decline as jobs tied to the industry disappear, worsening local poverty and inequality.

Modernization and Growth of New Industries
- As industries shift focus, such as moving from primary to secondary or tertiary production, demand arises for new skills like coding or advanced manufacturing.
- Workers in traditional roles may find their existing skills obsolete, creating a mismatch between available jobs and worker capabilities.
- If the education system and training programs fail to adapt, structural unemployment persists, with entire demographics unable to access emerging job markets.

Question 30

what is comparative advantage

Answer 30

when a company can produce a good at a lower opportunity cost compared to a similar industry abroad

Question 31

what is the natural rate of unemployment

Answer 31

• unemployment that occurs when the labour market is in equilibrium
• consists of structural, frictional and seasonal unemployment