Unemployment Flashcards
What are the two categories of unemployment?
The long-run problem and the short-run problem:
- the natural rate of unemployment
- the cyclical rate of unemployment
What is the natural rate of unemployment?
It is the unemployment that does not go away on its own even in the long run
What is cyclical unemployment?
This refers to the year-to-year fluctuations in unemployment around its natural rate
Which type of unemployment is the amount of unemployment that the economy normally experiences?
Natural rate
Which type of unemployment is associated with short-term ups and downs of the business cycle?
Cyclical unemployment
What are two ways in which unemployment can be measured?
A monthly survey of households
Claimant count
What are the 3 categories related to employment that an adult can be placed in?
Employed
Unemployed
Not in the labour force
Define labour force
The total number of workers, including the employed and the unemployed
How is the unemployment rate calculated?
It is the percentage of the labour force that is unemployed
What is the formula for the unemployment rate?
(number unemployed/ labour force) x 100
What is the labour force participation rate?
The percentage of the adult population that is in the labour force
How can you calculate the labour force participation rate?
(labour force / adult population) x 100
Why is it difficult to distinguish between a person who is unemployed and a person who is not in the labour force?
Some people are discouraged workers whilst others may claim to be unemployed in order to receive financial assistance even though they aren’t looking for work
What is meant by a discouraged worker?
A person who would like to work but has given up looking for jobs after unsuccessful search
Do discouraged workers show up in employment statistics?
No
What is most of the economy’s unemployment problem attributable to?
Relatively few workers who are jobless for long periods of time
What would happen in an ideal labour market?
wages would adjust to balance the supply and demand for labour, ensuring all workers would be fully employed
What does frictional unemployment refer to?
The unemployment that results from the time that it takes to match workers with jobs. In other words, it takes time for workers to search for the jobs that best suit their tastes and skills
What is structural unemployment?
This is the unemployment that results because the number of jobs available in some labour markets is insufficient to provide a job for everyone that wants one
What is job search unemployment?
This is the process by which workers find appropriate jobs given their tastes and skills and results from the fact that it takes time for qualified individuals to be matched with appropriate jobs
Why is job search unemployment different to other types of unemployment?
It is not caused by a wage rate higher than equilibrium but by time spent searching for the “right” job
Why is some frictional unemployment inevitable?
Because the economy is always changing-
changes in the composition of demand among industries or regions are called sectoral shifts
It can take time for workers to search for and find jobs in new sectors
Give 3 policies that the government can use to affect the time it takes for unemployed workers to find new jobs
Government-run employment agencies
Public training programs
Unemployment insurance
What do government- run employment agencies do?
They give out information about job vacancies in order to match workers and jobs more quickly
What do public training programs aim to do?
To ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty
What is unemployment insurance?
This is a government programme that partially protects workers’ incomes when they become unemployed
What two things does unemployment insurance offer?
Partial protection against job losses
Partial payment of former wages for a limited time to those who were laid off
What does unemployment insurance increase?
The amount of search unemployment
What might unemployment improve?
The chances of workers being matched with the right jobs
When does structural unemployment occur?
When the quantity of labour supplied exceeds the quantity demanded
Which type of unemployment is thought to explain long-term unemployment?
Structural unemployment
What are 3 reasons why there is structural unemployment?
Minimum wage laws
Unions
Efficiency wages
What happens when minimum wage is set above a level that balances supply and demand?
It creates unemployment
Why does having a minimum wage that is set above the equilibrium wage cause unemployment?
There is a labour surplus
What is a union?
This is a worker association that bargains with employers over wages and working conditions
What is a union a type of?
It is a type of cartel that tries to exert its market power
Define collective bargaining?
This is a process by which unions and firms agree on the terms of employment
What might happen if the union and firm cannot reach a collective bargaining agreement?
A strike might be organised
What does a strike refer to?
It refers to when a union organises a withdrawal of labour from the firm
What are the effects of strikes on insiders?
They reap the benefits of collective bargaining
What are the effects of strikes on outsiders?
They bear some of the costs
Who are the insiders and outsiders?
Insiders are the workers inside the union, outsiders are not in the union
Why do unions often achieve above-equilibrium wages for their members?
Because they act as a cartel with the ability to strike or otherwise impose high costs on employers
What are efficiency wages?
These are above-equilibrium wages paid by firms in order to increase worker productivity. The firm chooses to do this.
What is the theory about efficiency wages?
Firms operate more efficiently if wages are above the equilibrium level
What are 4 reasons why a firm may prefer higher than equilibrium wages?
Worker health
Worker turnover
Worker effort
Worker quality
Explain worker health
Better paid workers eat a better diet and thus are more productive
Explain worker turnover
A higher paid worker is less likely to look for another job
Explain worker effort
Higher wages motivate workers to put forwards their best effort
Explain worker quality
Higher wages attract a better pool of workers to apply for jobs
