Unemployment

Question 1

Governments want full employment

Answer 1

1. governments aim for full employment - where everybody of working age, who wants to work, can find employment at the current wage rates.
2. Full employment doesnt mean everyone has a job - always be ppl between jobs
3. Governments want full employment because this will maximise production and raise standards of living in the country
4. If there’s unemployment in an economy then it won’t be operating at full capacity, so it’ll be represented by a point within the PPF curve. At full employment the economy can operate at full capacity, so it can be represented by a point on the PPF curve * look at point B on diagram*
5. Under-employment would also mean economy is not operating at full capacity - point within the PPF curve. Under-employment is when someone has a job, but it’s not a job that utilises that person’s skills, experience or availiability to the best effect. E.g. a qualified accountant serving drinks in a pub might count as under-employed, as might someone who could only find part-time employment when they actually wanted a full-time position.

Question 2

Economic growth and time of the year affect unemployment

Answer 2

1. Labour is derived demand - an employer’s deamnd for labour is derived from consumer’s demand for goods and services. So when demand in the economy is low, unemployment will rise - when demand is high, unemployment will fall.
2. Cyclical unemployment usually happens when the economy is in a recession - when aggregate demand falls, employment will fall too. A country suffering from a negative output gap is likely to have cyclical unemployment too.
3. Seasonal unemployment - occurs because demand for labour in certain industries won’t be the same all year round. E.g. the tourism and farming industries have ‘peak seasons’ where the need for labour is much higher than at other times of the year. Retailing is also affected by seasonal unemployment
4. Seasonal unemployment tends to be regular and predictable, and it only affects certain industries. Cyclical unemployment, on the other hand, can affect any industry.

Question 3

Structural Unemployment is made worse by Labour Immobility

Answer 3

1. Structural unemployment is caused by a decline in a certain industry or occupation - usually due to a change in consumer preferences or technological advances, or the availiability of cheaper alternatives. It often effects ppl in regions where there’s a decline in traditional manufacturing e.g. shipbuilding or the steel industry - made worse by labour immobility:
   - Occupational immobility occurs when some occupations may decline over time, but the workers in these occupations dont have the skills required to be able to do the jobs that are availiable.
   - Geographical immobility is where workers are unable to leave a region in which has high unemployment to go to another region where there are jobs. This might be because they cant afford to move to a different region, or they have family ties.
2. If a region is affected by structural unemployment then it could also suffer from the negative multiplier effect - unemployment will => less spending => more unemployment in the region.
3. Problem of structural unemployment may become more common in the future:
   - Technological change in both products and production methods is accelerating quickly. This will speed up the decline of out-of-date industries and reduce the number of workers needed to make the products.
   - Consumer spending is more likely to change as consumers are better informed than ever before - making them more likely to switch to lower priced or higher quality goods.

Question 4

Frictional Unemployment is caused by the Time it takes to find a New Job

Answer 4

1. Frictional unemployment is the unemployment experienced by workers between leaving one job and starting the next.
2. Even if an economy is at full employment, there will be some frictional unemployment. There will always be some employees changing jobs - maybe because their contract has run out or because they want to earn higher wages.
3. The length of time ppl spend looking for a new job will depend on several things:
   - In a boom the number of job vacancies is much higher. So frictional unemployment is likely to be short term.
   - In a slump frictional unemployment could be much higher as there will be a shortage of jobs.
   - Generous welfare benefits will give ppl less incentive to look for a new job, or they can mean ppl can afford to take their time to look for a good job - time spent between jobs may increase.
   - Quality of information provided to ppl looking for jobs is important too. If ppl dont know what jobs are availiable or what skills they need to get the job they want, then they’re likely to remain unemployed for longer.
   - Occupational and geographical labour immobility will also affect the length of time between jobs.

Question 5

Real Wage Unemployment is caused by wage increases Above the equilibrium

Answer 5

• Real wage unemployment is caused by real wages being pushed above the equilibrium level of employment. It’s usually caused by trade unions negotiating for higher wages or by the introduction of a national minimum wage.
• Introducing a national minimum wage (NMW) above the equilibrium wage rate (We) would cause the supply of labour to increase from Qe to Qs and demand to fall from Qe to Qd. This would then cause unemployment of Qs to Qd, due to the excess supply.
• However a rise in productivity or in consumer spending would increase the demand for labour (causing the labour demand curve to shift to the right) and this would reduce the size of the increase in unemployment.
• LOOK AT DIAGRAM PG 157*

Question 6

Migration may affect unemployment during a Recession

Answer 6

1. Migration of workers into a country increases the supply of labour
2. When the economy is strong, national income should increase as a result of migration - especially if the skills and knowledge of the migrant workers is different from the mix of skills of the country’s native popln. There’s little evidence from the UK that migration during a boom increases unemployment among the native popln.
3. During a recession, unemployment among native workers may increase, especially if migration levels are particularly high. However, even these effects weaken over time.

Question 7

There are several Costs and Consequences of Unemployment

Answer 7

1. The unemployed will have lower incomes, which means that they’ll spend less and this could reduce firm’s profits.
2. Unemployment will mean less income tax revenue for governments, and less consumer spending will reduce their indirect tax revenue. The govt will also have to spend more on unemployment benefits.
3. Areas of high unemployment can have high crime rates, and reduced incomes can cause ppl to have health problems.
4. Workers who are unemployed for a long time may find that their skills and training become outdated. This will reduce their employability and make it more likely that they’ll stay unemployed.