unemployment Flashcards
explain unemployment
- Unemployment occurs when people who are willing and able to work
cannot find a job. for example, not unemployed not of working age too young to work retired. - a number of adults of working age are
not seeking jobs, including people who are at university, retired early, homemakers
People who are not working and trying to find employment are said to be economically inactive. They are not part of the labour force. - The unemployed are, in contrast, part of the labour force. They are an
economic resource that is not currently being used. Anyone in the
labour force is said to be economically active
labor force
- The labour force in an economy is total number of workers who are available for work who can contribute to the production of goods and services. in employment, it also includes those who are unemployed and
who are seeking employment.
The size of a country’s labour force - the school leaving age
- the number of people who remain in full-time education above the
school leaving age - the retirement age
- the proportion of women who join the labour force.
A country with a higher number of people of working age is likely to
have a larger labour force than one with a smaller number of people of
working age. - labour force is also influenced by the labour force participation rate. The labour force participation rate percentage of the total population of working age who are actually classified as being part of the labour force.
- labor participation low due to a higher participation rate in higher education and a relatively large proportion of workers deciding to take early
retirement. labour force is constrained by social and cultural factors.
unemployemtn rate
- unemployment rate is the number of
unemployed people as a percentage of the labour force. - Unemployment rate = Number of people unemployed/Number of people in the labour force ×100
The employment rate and the unemployment rate do not add up to
100%. This is because the employment rate is the proportion of the
working age population who are in work and not the proportion of the
labour force in work
see unemployemnt denominator is labor force unemplyed emplyed
but employemtn denominator is working age this menas students retirees unemployed employed econmically inactive
claimant count
- The claimant count measure counts as unemployed those who register as unemployed in order to claim unemployment benefits
- The claimant count measure is relatively cheap and quick to calculate as
it is based on information that the government collects as it pays out
benefits.
-OVERSTATES Some receiving unemployment benefits not actively seeking employment and some may be working and claiming benefits illegally. - UNDERSTATES those who are too young
or too old to claim unemployment benefits, those who choose not to
claim benefits they are entitled to, those who are full-time students looking for work and those whose non-employment income is too high
Laobr force survey
The labour force survey measure is more widely used than the claimant
count measure. The measure involves conducting a survey to see who is actively seeking job
-The labour force measure picks up some of the groups not included in
the claimant count.
-It also has the advantage that it is based on internationally agreed concepts and definitions, so makes international
comparisons easier.
- More information is found on, for example, the qualifications job seekers have.
- However, the data are more expensive
and time-consuming to collect than the claimant count measure. Also,
as the data are based on a sample survey, they are subject to sampling
error and to the practical problems of data collection
frictional unemployment
- Frictional unemployment in unemployment that arises when workers
are between jobs. - One form of frictional unemployment is voluntary unemployment. This occurs when workers are not willing to accept
jobs at the current wage rate and working conditions influenced by how the level of
unemployment benefits compares to low wages. - search unemployment. This arises when workers do not accept the first job or
jobs on offer, but spend some time looking for a better-paid job. The
provision of more and better-quality information may reduce search
unemployment, - Casual unemployment refers to workers who are out of work between
periods of employment including, for example, actors, supply teachers
and construction workers. - seasonal unemployment, demand for workers fluctuates according to the time of the year. During periods of the year, people
working in, for example, the tourism, hospitality, building and farming
industries may be out of work
structural unemployement
Structural unemployment arises due to changes in the structure of the
economy. Some industries expand and some industries contract.
Methods of production change, often driven by advances in technology.
During this time, there may be a mismatch between job vacancies and
the skills, qualifications, experience and geographical location of those
who have lost their jobs. If workers cannot move from one industry to
another industry, due to a lack of geographical or occupational
immobility, they may stay structurally unemployed for some time.
* Regional unemployment. Declining industries may be concentrated in a particular area or areas of the country. For
instance, a decrease in demand for gold could result in a decline in
the South African gold mining industry and cause workers in the
gold mining areas, including Witwatersrand, to lose their jobs.
* Technological unemployment. In this case, people are out of
work due to the introduction of labour-saving techniques. For
example, the development of drones and robots delivering
shopping is resulting in some delivery drivers losing their jobs.
* International unemployment occurs when workers lose their jobs
because demand switches from domestic industries to more
competitive foreign industries. For instance, the number of steel
workers in the UK has fallen significantly over the past 40 years as
the UK steel industry has declined. In contrast, during this period,
the Chinese steel industry has expanded, creating more jobs.
cyclical unemployment
- cyclical unemployment or demand-deficient unemployment, arises due
to a lack of aggregate demand. Cyclical unemployment affects the
whole economy, with job losses occurring across a range of industries.
shows the labour market initially in equilibrium at a wage
rate of W. Then as a result of a fall in aggregate demand, firms reduce
output and aggregate demand for labour shifts to ADL1. If workers
resist wage cuts, demand-deficient unemployment XQ will exist
-Even if wage rates fall, this type of unemployment may persist. This is
because a cut in wages would reduce demand for goods and services as
people would have less money to spend, which would cause firms to
reduce both their output further and make more workers redundant (lose
their jobs)
cosequeces of unemployemt
- Workers who lose their jobs are likely to experience a fall in income.
- Unemployed people are likely to find it more difficult to get another job
the longer they have been out of work. hysteresis This is because they will miss out on training, will become out of touch with advances in technology
and may lose confidence. - They may also experience a decline in their physical and mental well-being.
- For a small number of people, there is a
chance that a period of frictional or structural unemployment may give
them the opportunity to search for a job they may enjoy more and which
may be better paid. - Firms wanting to expand may have a greater choice of potential
workers. - Firms may also benefit
from workers not requesting wage rises for fear of losing their jobs. - Firms may, however, suffer from lower demand for their goods and
services. - The economy will experience an opportunity cost. Output will be below
its potential level. If the unemployed were still working, more goods
and services would be produced and living standards would be higher. - The tax revenue received by the government will be lower than with a
higher level of employment. If state benefits are paid by the
government, budget deficit
eval of unemp
- The effects of unemployment depend significantly on its rate, duration
and type. - A high rate of unemployment means that the economy is producing well inside its production possibility curve, forgoing a large quantity of output.
- Unemployment is also more significant the longer the workers are
employed. The income of the long-term unemployed will be low. They
may suffer poor mental health because of the stress of being out of
work.The chances of workers gaining employment tends to fall the longer
they are out of work. This is for a number of reasons. The skills of the
unemployed may become outdated, they may lose confidence and some
may become discouraged workers. . - Frictional unemployment is considered the least serious type of
unemployment. Indeed, some level of frictional unemployment is
unavoidable in a changing economy. In contrast, cyclical unemployment
can cause serious problems. Cyclical unemployment may be of a high
rate and last a long period of time. - What governments want to achieve is to avoid structural
and cyclical unemployment and to keep frictional unemployment as low
as possible. - Low unemployment is not always a sign of a strong economy. Some
workers may be in low-paid and insecure jobs. experiencing underemployment. They may be in part-time jobs when
they want full-time jobs or they may be in jobs that do not fully match
their talents. - The reasons for a fall in a country’s unemployment rate must also be
closely examined. If the fall results from previously unemployed
workers gaining good quality jobs, it is likely to be beneficial. However,
this is unlikely to be the case if the reduction in the rate has been caused
by the unemployed giving up on trying to find work.
full employment
- level of employment who wants jobs have jobs excluding frictional unemployment
- Full employment is the highest level of employment possible. Full
employment is often considered to be achieved when the unemployment
rate falls to 3%, not 0 bcoz firictional unemp
equilibrium unemp
- Equilibrium unemployment is unemployment which exists when the
aggregate demand for labour equals the aggregate supply of labour.voluntary,frictional,structural unemp If an economy is operating with full
employment, it will be productively efficient and will be
producing on its production possibility curve - At this point there will be no pressure for the real wage rate to change.
Those willing and able to work at the current wage rate will have a job.
However, some people who are part of the labour force will not have a
job. This is because they are not willing to accept jobs at the current
wage rate, lack information about job vacancies, do not have the skills
and qualifications required or are not able to move to where the work is.
shows a country’s labour market being in equilibrium. The
aggregate demand for labour (ADL) matches the aggregate supply of
labour (ASL) at a real wage rate of W. The aggregate labour force
(ALF) includes those prepared to work at the real wage rate of W and
able to find a job. It also includes those who are seeking better paid
jobs, those in between jobs and those who are not able to do the jobs on
offer because they live in a different part of the country or lack the skills
or qualifications required. The ALF curve moves closer to the ASL
curve as the real wage rate rises. This is because a higher proportion of
the labour force will be willing to accept the wage rate.
Unemployment in this case, is arising due to problems on the supply-side.
disequilibrium unemp
- Keynesian economists argue that the labour market can be in
disequilibrium for long periods of time.
unemployment of XY arising from the aggregate supply of labour
exceeding the aggregate demand for labour. This disequilibrium
unemployment is equivalent to cyclical unemployment - The wage rate can stay above the equilibrium level for a number of
reasons. One is that aggregate demand for labour fell, but the real wage
rate remains unchanged because workers resist wage cuts. The wage
rate might also have been pushed up above the equilibrium level by
trade union action or by the government setting a national minimum
wage. The problem may not be solved simply by lowering the wage
rate. This is because lowering the rate could result in lower aggregate
demand and, in turn, lower aggregate demand for labour. A downward
spiral could be created
voluntary involuntary
- Voluntary unemployment, a occurs when
workers choose not to accept jobs at the current wage rate.they could
be employed, but they prefer to remain unemployed until they can gain
a job with a higher wage rate. In contrast, involuntary unemployment
arises when workers are willing to work at the current wage but cannot
find a job. - Most structural and cyclical unemployment is involuntary unemployment. Some frictional unemployment, particularly search
unemployment, may be voluntary. Workers may take longer looking for
a better paid job if the wage they can currently get is close to or below
any unemployment benefit they could receive
natural rate unemployment
- The natural rate of unemployment exists when the labour market is in
equilibrium with the aggregate demand for labour equalling the
aggregate supply of labour. - It is the rate to which new classical
economists think the economy will move back in the long run and
which is consistent with a constant inflation rate. If, for example, a
government increases aggregate demand to reduce unemployment,
aggregate demand for labour will increase. This will push up the wage
rate and move the ASL closer to the ALF. However, in the long run it
may increase the price level. Higher costs and a fall in the real wage
rate will result in unemployment returning to the natural rate.
The factors that determine the natural rate of unemployment in a
country at a particular time
are supply-side factors. They relate to the
causes of voluntary, frictional and structural unemployment. Supply
side factors include:
* the value of unemployment benefits relative to the value of low
pay
* national minimum wage legislation
* the quality of education and training
* how workers are affected by periods of unemployment
* the quantity and quality of information about job vacancies and
workers’ skills and qualifications
* the degree of labour mobility
* the flexibility of workers and firms.
Policy implications of the natural rate of
unemployment
- Widen the gap between low pay and unemployment benefit. This
could be achieved by cutting unemployment benefit and/or the
basic rate of income tax. - Remove any restrictions on the amount firms can pay their
workers. Some economists argue that firms may be less likely to
reduce the number of jobs they offer if they can reduce the wages
they pay. A national minimum wage might prevent firms from
doing this. - Improve education and training. A more skilled labour force is
likely to find it easier to switch from one job to another and so
suffer less from structural unemployment. Training of the
unemployed can be important in overcoming the problem of
hysteresis. Workers who experience long periods of
unemployment can lose confidence in gaining another job and their
skills may become out of date. Firms may also be reluctant to
employ someone who has been out of work for some time as they
may think the long-term unemployed will have lost the work
habit and may have to be retrained at the firm’s expense. - Increase the quantity and quality of information about the job
market. If firms know more about people who are looking for work
and workers know more about the jobs on offer, frictional
unemployment is likely to be lower. - Improve labour mobility. If workers are more mobile, it is likely
that more job vacancies will be matched with the unemployed. - Increase the flexibility in the labour force. New classical
economists favour reducing the power of trade unions and
eliminating national minimum wage legislation. They argue that
trade unions and a national minimum wage can push the wage rate
above the equilibrium level. They also think that trade unions can
restrict the tasks workers are prepared to do, which may reduce
labour productivity. Greater flexibility by firms may also increase
employment. The more flexible firms are in terms of, for example,
the hours workers can work and where they can do the work, the
more workers may be prepared to accept the jobs on offer at the
current wage rate.
Patterns and trends in employment
- The proportion of women in the labour force. The general trend is
for women to form an increasing proportion of a country’s labour
force. For example, whereas in 1990 20% of Bangladesh’s labour
force was female, by 2019 this had increased to 31% - Employment in the formal economy and informal economy.
Workers in the formal economy are protected by employment
legislation, but those in the informal economy are not covered by,
for example, national minimum wage legislation, restrictions on
working hours and health and safety standards. Those in the
informal economy are not represented by trade unions and are
unlikely to receive sickness benefit or a pension. - Full-time and part-time. The proportion of people who work full
time and part-time varies over time. Some people choose to work
part-time so that they can help to raise their children, care for
elderly or sick relatives or enjoy leisure activities. Others are
forced to work part-time as full-time jobs are not available. This is
most likely to occur during an economic downturn.
Factors affecting occupational mobility
- Quality of education and training. The better educated and trained
workers are, the more different types of occupation they are likely
to be able to do. - Information available. If workers are to move smoothly from
occupations that are experiencing decreases in demand to ones
experiencing increases in demand, they need to know where the
job opportunities are. - Barriers to entry and exit. Professional bodies and trade unions
may seek to restrict supply to an occupation in order to drive up
the wage rate. Workers may also have signed long-term contracts
which may make it difficult for them to move to another
occupation. - Time. The longer the time period, the more opportunity workers
will have to gain the necessary training, qualifications and skills to
gain a job in another occupation
Factors affecting geographical mobility
- The price and availability of housing. Workers may not be able to
move to jobs in another location if there is a lack of affordable
housing in that location. - Information available. As with occupational mobility, workers
need to know where the vacancies are, details about the pay being
awarded and other aspects relating to the job. - Personal ties. Workers may be reluctant to leave members of their
extended family and friends to move to another location. - Immigration controls. Moving to and working in another country
may be restricted by limits on work visas and permission to stay. - Language barriers. Workers may not be able to take up a job in
another country because they do not speak the language. - Cultural differences. Workers may find the culture of another
country unattractive. - Differences in pay and the cost of living. Workers may find that
they are better off by being unemployed in their home country than
moving to a job in another country
Policies to reduce unemployment
To reduce cyclical unemployment, a government will use expansionary
fiscal or monetary policy tools to increase aggregate demand. Among
the expansionary fiscal policy tools it may use are:
* a reduction in indirect or direct taxation to increase consumer
expenditure
* a cut in corporate taxes to stimulate investment
* an increase in government spending.
The possible monetary tools include:
* Reduce the rate of interest to increase consumer expenditure and
investment.
* Increase the money supply again to increase consumer expenditure
and investment.
* Lower the exchange rate, either through a formal devaluation or
through intervention in the foreign exchange market in the case of
a managed float, to increase net exports
extent to which unemployment poilcies work
-The rise in aggregate demand may not be very large if consumers and firms are
worried about the future
- if firms expand their output capacity by buying capital equipment that requires few extra workers to operate.
- Fiscal and monetary policies also have a time lag. By the time
unemployment has been recognised as a problem, policy tools have
been decided upon and put into action, other components of aggregate
demand may have started to increase.
- To reduce frictional and structural unemployment, a government is
likely to introduce supply-side policy tools. It may increase information
on the job market. It could reduce unemployment benefit and income
tax rates to increase the reward from working and so encourage people
to spend less time between jobs.
- Improved education and training may
increase workers’ occupational mobility and so reduce structural
unemployment
- Trade union reform may stop trade unions pushing the
wage rates of their members above the equilibrium levels and taking
industrial action. This may increase the efficiency of the country’s
labour and product markets.
- Some supply-side policy tools can take a long time to have an effect.
There is also the risk that workers may not respond as expected, and if
the cause of the unemployment is actually a lack of aggregate demand,
the policy tool may make the situation worse. For example, a cut in
income tax has the potential to reduce not only voluntary, frictional and
structural unemployment but also cyclical unemployment. There is,
however, no guarantee that it will encourage the unemployed to seek
work more actively. If there is a lack of jobs available, the unemployed
would not be able to find them anyway. If there are no suitable
vacancies, a cut in unemployment benefit will reduce consumer
spending which could result in cyclical unemployment
