Unemployment Flashcards
How do we define the unemployed?
The unemployed are those registered as able, available and willing to work at the going wage rate in any suitable job who are actively seeking work but cannot find employment.
How do we define the NRU?
The natural rate of unemployment is the rate of unemployment an economy experiences when the labour market is at equilibrium, caused by a combination of frictional and structural unemployment.
What is a beautiful 3 part summary sentence for WHY structural unemployment is caused?
This [S.U.] Can be caused by labour being substituted for technology , the industry failing due to not being able to be price competitive against international rival firms or due to changing patterns of demand.
Why is it bad for people if LRAS shifts left? (E.g. because of hysteresis and erosion of human capital)
Hint: think about inflation and govt policy
Risks any increase in AD to be inflationary, thus reducing the purchasing power of money
How do we define investment with nice links and chains?
Investment is spending on capital stock to increase productive capacity by improving the quality and quantity of factors of production.
Instead of just saying inflation will happen, how can we describe the chain of analysis for WHY it happens, e.g. from when spare capacity is getting used up/unemployment is falling.
- Demand pull inflation can occur as consumers compete for a limited supply of goods (essentially, this is the rationing function of prices aggregated across the economy) and firms gain the confidence to raise prices.
- As factors of production become more scarce, their price rises, such as the wages of labour for example.
- This serves to increase costs for firms.
- Firms will pass theses costs to consumers rather than absorbing them (safeguard profits), causing prices to rise.
Why is the propensity to import in the UK high?
The UK now has a small manufacturing base, with the result that when the economy grows, the propensity to import is very high.
If you want to expand your chains of analysis on the worsening of the budget deficit, you don’t just say “this could worsen the budget deficit” you add…
This could worsen the budget deficit AND REDUCE THE MONEY THAT CAN BE INVESTED INTO IMPROVING INFRASTRUCTURE, HEALTHCARE AND EDUCATION -> JEOPARDISING IMPROVEMENTS IN LONG RUN ECONOMIC CAPACITY.
What is the fancy way of saying low unemployment improves fiscal balance so they can spend on supply side?
Furthermore, low unemployment will improve the FISCAL DIVIDEND which facilitates increased government spending on interventionist supply side policies
What type of benefit is JSA?
“Means-tested”
Long run Phillips curve analysis?
Neo classical economists argue that in the long run, the trade off does not exist as output and unemployment levels always return back to the full employment level. This can be illustrated through the LRPC displaying how any demand side policy used to reduce unemployment causes a rise in inflation only. This is because of inflationary expectations adjusting as the inflation rate rises because of workers suffering from ‘money illusions’ where they confuse the increase in nominal wages with an increase in real wages and when they realise this mistake, they may move back into unemployment.
Why is LFS better than Claimant count
Claimant count is less reliable as a measure because not all those unemployed may be on JSA
