Unemployment Flashcards
unemployment
condition of someone of working age who is willing and able to work, actively seeking employment, but unable to find a job
unemployment rate
percentage of the total labor force in a nation that is unemployed
unemployment rate equation
number of unemployed / labor force *100%
labor force
- employed
- self-employed
- unemployed
- people in government training schemes
- military
Why do unemployment rates vary depending on country?
- existence of social safety nets
- education levels of workforce
- evolving structures of economy
labor force participation rate
proportion of working age population that is either unemployed or employed
what is not included when measuring labor force?
working age population population
How is unemployment measured?
claimant system ILO survey
What is the advantage of ILO over claimant system?
ILO incorporates unregistered unemployed as well so tends to show higher levels of unemployment
underemployment
condition of a worker who is technically employed, but is either over-qualified or is working part-time when full-time work is desired
do unemployment figures take underemployment into account?
no
What are the individual consequences of unemployment?
- decreased household income and purchasing power
- increased levels of psychological and physical illness (stress and depression)
What are the social consequences of unemployment?
- downward pressure on wages for the employed (high unemployment = increased labor supply so workers must take pay cuts)
- increased poverty and crime transformation of traditional societies (large-scale migrations and social upheaval)
What are the economic consequences of unemployment?
- lower level of AD (consumption decreases), precautionary saving rises
- under-utilization of nation’s resources
- Brain-drain (workers leave nation to find jobs - production possibilities of nation decrease)
- Turn towards protectionism and isolationist policies (cheap foreign products blamed for unemployment so increase tariffs and increased domestic subsidies - will lead to market being less competitive globally because misallocating resources)
- Increased budget deficits (unemployed take benefits and pay no tax)
- Wastes resources invested in training and educating workers
- Growth potential of nation decreases
What are the two broad categories of unemployment?
equilibrium dis-equilibrium
What are the types of equilibrium unemployment?
- frictional
- seasonal
- structural
- technological
- consumption
- location
- regional
equilibrium unemployment
unemployment that exists when the market is at equilibrium (like circular flow)
frictional unemployment
voluntary unemployment due to people moving between jobs and who are engaged in job search
seasonal unemployment
jobs that do not last year round (e.g. agricultural workers)
structural unemployment
people made jobless because of capital-labor substitution’, long run decline in labor demand causes lay-offs
technological unemployment
human jobs replaced by machinery (labor intensive to capital intensive)
consumption unemployment
if consumption patterns change, have to change skills
location unemployment
producers move country to decrease costs (cheaper labor)
long term unemployed
number of people out of work for at least one year
working population
population of working age
participation rate
percentage of working population who are in labor force
vacancies
number of registered jobs available but as yet unfilled
employment rate
percentage of population of working age that is in a job
hysteresis effect
- damage that unemployment does to skills and employability of people out of work
- longer out of job, less attractive to employers
- technical and social skills decline -> higher structural unemployment and natural rate of unemployment
hidden unemployment
- long-term unemployed give up active search for work and leave labor market
- no longer counted in unemployment statistics
benefits of unemployment
- dampening inflationary pressures: bargaining power of workers to bid for higher pay lower so inflation decreases (cost-push inflation)
- environmental: slower rate of growth reduces pressure on resources
- greater pool of unemployed workers to take up new jobs when become available (depends of occupational mobility)
- entrepreneurship opportunities: labor resources free to find more productive uses (start businesses)
Natural rate of unemployment
- frictional, structural, seasonal unemployment
- aggregate supply of labor represents members of working age population willing and able to work, skills might be mismatched for labor demanded
cyclical unemployment and graph
- occurs when workers have skills which are in demand but lose their jobs due to a fall in total demand for the nation’s goods and services
- arises due to fluctuations in the nation’s business cycle
- aka demand-deficient unemployment
- contraction in public or private spending reduces AD and leads to fall in national output; downward pressure on wages and prices
- wages inflexible in short run, disequilibrium where total demand for labor falls but wages remain high creating surplus of labor
- TLF = total labor force
neoclassical AS wage assumption
- wages and prices are perfectly flexible and so adjust to level of demand so ouput always at full employment level
- more possible in long run
Keynesian AS wage assumption
- businesses will cut number of workers, not wages in short run
