Unemployment Flashcards
What is frictional unemployment?
Related to the process of changing jobs which may involve a period out of work
What is cyclical unemployment?
Category of unemployed whose number varies according to the business or econ cycle (demand deficient unemployment)
What is structural unemployment?
Where there is a mismatch between the skills of the unemployed and the required skills. (Change in structure of the economy)
What is classical/real wage unemployment?
A rise in real wages above the market clearing level causes a contraction in labour demand and lower employment
What is hidden unemployment?
Unemployment known to exist but is not included in official govt figures
What is seasonal unemployment?
Certain times of the year unemployment increases in certain markets
What are the policies to deal with unemployment?
- improving geographical mobility of labour
- targeted macro stimulus policies to boost growth
Why does high unemployment matter? (Fiscal costs)
- less tax revenue eg income vat council corporation etc
- higher welfare (lose job = increase welfare)
Why does high unemployment matter? (Economic costs)
- lost output (waste of resources)
- lower gdp growth (lower living standards)
What is geographical immobility?
Vacancies in another location
What is occupational immobility?
Don’t have the correct skills for a job
What is Says Law?
Supply creates its own demand
How does someone become structurally unemployed?
A change in the structure of the economy e.g. Declining industry
What could a change in structure of the economy also be due to?
Overseas competition where another country gains a competitive advantage (lower opportunity costs)
Why would unemployment continue ?
Immobility of labor
Why does the supply curve start to curve backwards?
- workers begin to work less because this have the ability to maintain standard of living with less hours
- more income is taken from income tax so they work less hours.
What is natural employment?
Where no one is cyclically unemployed, there is only voluntary unemployment where people are choosing to not work
What is the short Run?
When spare capacity exists in an economy
What is the long run?
When no spare capacity exists in the economy
What did Phillips find?
In the short run there is a trade Off between unemployment and inflation however in the long run there is no trade Off
What did Phillips find?
In the short run there is a trade Off between r’employment and inflation however in the long run there is no trade Off
What does scarce mean?
Demand for it is greater than the supply
What is the process of the LR Phillips curve?
1 - the economy is at position A at congrun equilibrium, unemployment is at 6% and inflation is at 0%
2 - AD is stimulated and shifts outwards to AD1. The economy is now at position B
3 - At B unemployment has fallen to 4% and the price level has risen
4 - as firms have more workers to meet the increased demand, costs rise
5 - firms costs are rising due to scarcer factors of production
6 - so SRAS shifts inwards to SRAS 1 and now were at C
7 - the move to C leads to a rise in unemployment (bad) and a rise in PL (also bad) so no track of in the LR
8 - at C we’re back at 6% employment and 0% inflation (prices have stopped
Rising)
9 - increasing supply side policies for the natural rate of unemployment which causes LRAS to shift outwards to LRAS 1
How is it possible to go beyond capacity?
- Overtime (only 24 hours in a day therefore its limited)
- Import (bad for bop)
- Use only leftover stock from previous years (eventually gets sold)
- NRU take up work (then lose jobs due to the LR Phillips curve)
What are the factors affecting the size of the NRU?
- Level of welfare benefits
- level of income tax in the economy
- level of wage controls in operation and other restrictions on the operation of the market
- trade union power and militancy
- degree of labour mobility
- rate of change in the economy and ability of workers to adapt to these changes
- social attitude and institutions
