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

• sampling size - only 40,000 people are interviewed, very small sample of the working age population (40 million)
• it is expensive to conduct the survey and collect data
• discouraged workers, “hidden unemployed”, may give up seeking a job so will not be included in the unemployment figures
• inactive groups - carers, ppl who are reliant on their spouses income, could be of working age but won’t be counted as they don’t fit the definition
• margin of error for unemployment in the UK is 1-3%, quite high

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

• cutting interest rates - lower borrowing costs for consumers, makes it cheaper for consumers to borrow, incentivises consumption, decentives saving, boosts spending in the economy
  - interest rates on saving accounts could fall in the economy, reduces incentive to save, boosts consumption in AD
• mortgage rates fall, households pay less money to rent

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

• technology advancements - this automated physical jobs reducing the need for physical workers
• loss of comparative advantage - bigger decline in demand
• modernisation/new industry growth - therefore a need for new skills for workers to learn, or an industry transferring from primary to secondary sector production
  but education system may not be keeping up with the new skills needed

Question 30

what is comparative advantage

Answer 30

when a company can produce a good at a lower 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