Unemployment Flashcards
Why are the unemployment rates in young people the highest
- Most young people are actively looking for work
- Young people have less experience/skills
What is the current unemployment rate in the UK
3.8% - the lowest rate since the 1970s
What causes differences in unemployment rates
- Skills difference
- Regional difference e.g. deindustrialisation in the North
- Long term unemployment is lower than short term
What is hysteresis
When employees lose their skills after being unemployed for a long time, causing a decrease in full capacity
What % of the working age population is inactive
20% (8.5 million people)
(Inactive means they have not looked for work in the last 4 weeks or unable to start work in the next 2 weeks)
What are reasons that being inactive is bad for economy and can make unemployment figures misleading
- People are unemployed but have become de-moralised so have not looked for work
- People who are living off out of work benefits instead of looking for work
What are the costs of unemployment
- Loss of real GDP because productivity decreases
- Lower gov revenue from taxes
- Poverty and lower standard of living causing inequality
- Hysteresis in the long term, shrinking labour force
What form of unemployment explains the short term fluctuations in unemployment
Demand deficient unemployment
(Demand is changing all the time)
What are evaluation points for demand- deficient unemployment
- Depends how big or long lasting the fall in AD is
- Depends on how the government responds
- Depends on the flexibility of the labour market (which has increased recently)
-Is there a trade of between quality and quantity of work (people with flexible contracts may be underemployed)
What are the 2 types of supply side unemployment
- Frictional
- Structural
(These are otherwise known as voluntary unemployment)
What is Structural unemployment + frictional unemployment
The natural rate of unemployment (the minimum unemployment rate)
What is frictional unemployment
People who are moving between jobs
What is the drawback of frictional unemployment
If the job search is too long, causing a waste of potential output and later hysteresis
Why might a job search be excessively long
1) people wait for the perfect job
2) they have unrealistic wage expectations
3) Imperfect information
4) The unemployment trap (lack of incentive because of tax decreasing reward)
Explain the 2 types of structural unemployment
- Occupational immobility is caused by workers not having the skills to work in a different industry e.g. deindustrialisation
- Geographical immobility is caused by workers not being able to move from one area to another for work
How can Keynesian unemployment be reduced
Maintain a level of aggregate demand through fiscal and monetary policies
How can voluntary unemployment be reduced
- Improve flexibility of the labour market e.g. hours and wages
- Education to improve skills and reduce occupational immobility
- More efficient job centres
- Reform tax and benefit system to reduce unemployment trap
