unempolyment quiz Flashcards
Consequences of unemployment
- Loss of income- leads to a decline unemployed living standards as well as a decline in spending power and rise of falling into debt problems.
-Negative multiplier effects- one person’s spending is another’s income so to lose well paid jobs in an area, such as if a large factory closed down, can lead to a drop in demand for local services downward pressure on house prices and ‘second-round employment effects’ for businesses supplying the factory.
-Loss of national output- leads to a loss of potential national output (ie GDP operating below potential) and is a waste of scarce resources. Unemployment can damage economies growth potential. When high there will be an increase in spare capacity - the output gap will become negative and ca have deflationary forces on prices, profits and output
-Fiscal costs- Government looses out because of fall in tax revneue and higher spending on welfare payments, can lead to an increase in the budget deficit which then increases the risk that the govt will have to raise taxes , or scale back plans for public spending.
-Social costs- Unemployed linked to social deprivation, e.g. relationship with crime and social dislocation including increased divorce rates, worsening health and lower life expectancy. Regions that suffer from persistently high long term unemployment see falling real incomes and widening inequality of income and wealth.
Policies to reduce unemployment
Reducing Occupational immobility: Immobility is a cause of structural unemployment, Policies like apprenticeships schemes can provide new skills people need to find fresh employment and improve incentives to find work. The poor quality of workplace training has been a concern with evidence of a persistent skills gap in the UK.
Benefit and tax reforms: To some, a policy that reduces real value of welfare benefits might increase incentives for unemployed to take a job Targeted measures to improve people’s incentives might include linking welfare benefits to participation in work experience programmes or lower marginal tax rates for people on low incomes.
Employment subsidies and/or employment tax cuts:
- Government subsides for businesses that take on long term unemployed
-Lower taxes on businesses that employ more workers might be effective
Changing participation age- Increase the amount of time young people have to spend in education- 2015 young people have to stay in education until 18.
Reducing the geographical immobility of labour: People may have the right skills but high house prices and rents may make. it impossible to change location to get a new job. Low level of house building in a major factor in this.
Boosting aggregate demand- might include increases in state investment spending or lower taxes to boost disposable income
Both are a fiscal stimulus. Many governments have turned to fiscal policy as a way of creating new jobs, typically involving construction projects that are labour intensive
The hope is that extra spending on new roads, housing and other infrastructure projects will lead to a strong positive multiplier effect on output, incomes and jobs.
Real wage rigidity
wage rigidity happens when workers are reluctant to see their real wages fall during an economic downturn.
Real wages drop when nominal wages don’t rise as fast as prices
Keynesians argue that wages can be “sticky” or slow to adjust downward because of long-term labour contracts, trade union collective bargaining agreements, and social norms about fair pay.
Workers and employers may be reluctant to renegotiate contracts or reduce wages during economic downturns, leading to persistent real wage levels that are too high relative to the demand for labour.
Human capital
Human capital refers to the knowledge, skills, and abilities that people have that enable them to produce goods and services.
It’s basically the intellectual and behavioural assets that people have that enable them to be productive and contribute to economic growth.
This can include things like education, training, experience, and personal qualities like creativity, problem-solving abilities, and emotional intelligence.
The more human capital a person has, the more valuable they are to an employer, and the more productive they are likely to be.
Improving human capital is critical to reducing structural unemployment.
The Unemployment Trap
The unemployment trap is a frustrating cycle that can make it difficult for people who are unemployed to find work. Being unemployed can lead to a loss of skills and experience, which can make it harder to get a job. It can also lead to a loss of confidence and motivation, which can further hinder a person’s job search.
Additionally, employers may be less likely to hire someone who has been unemployed for a long time, as they may view them as having lower productivity.
The tax and welfare system can also contribute to the unemployment trap especially in relatively low-paid jobs
Real Wage unemployment
Classical real wage unemployment is a concept that comes from the classical school of economic thought. It’s the idea that unemployment is causes by wages being too high relative to the productivity of workers. In other words, employers are unwilling to hire workers at the current wage level because they believe that workers aren’t worth that much. This can occur when labour supply exceeds labour demand, or when there is a surplus of workers in a particular industry. Classical economists believe that if real wages were allowed to adjust downward, unemployment would disappear because works would be willing to work for less.
Cyclical unemployment in a recession
Cyclical unemployment is due to a lack of demand for goods and services.
In a recession, many firms reduce employment to cut their costs – this is called “labour shedding” or “down-sizing”
In a recession, real national output contracts and this then leads to an increase in spare productive capacity. Firms then cut their workforce and cyclical unemployment rises.
Reasons for high levels of job vacancies in the UK economy
-Brexit: Brexit has made it harder to recruit workers from the EU cruising shortages of workers in sectors, such as hospitality, social care and construction
-Skills gaps and low pay: skill shortages such as in engineering and IT allied to relatively low pay in some industries causing problems of recruitment and retention.
seasonal unemployemnt
Seasonal workers might be without paid jobs due to the time of the year when there are seasonal changes in demand, production and employment season, but then let go after the holidays. e.g farming, tourism, retailing, hospitality.
Gig economy
The gig economy is a work arrangement where people perform short-term, flexible, and often freelance work, typically through online platforms or apps.
Instead of having a traditional full-time job, people in the gig economy often work on a project-by-project basis, sometimes for multiple clients at once.
Some examples of gigs include rideshare drivers, freelance writers, virtual assistants, and food delivery workers.
The gig economy has grown in popularity due to the rise of technology, the desire for flexibility, and the shift away from traditional employment.
It is linked to zero hour contracts - employment arrangements where workers are hired without a guarantee of work hours.
Are unemployment figures accurate
-LFS is intended to be representative of the entire population of the UK, but there is always scope for sample error (but sample size is high)
-Unemployment is not the same as under-employment (i.e. people working part-time but who would prefer a full-time job)
-In all countries there is disguised “hidden “ unemployment with many people working in informal labour markets
-Measured unemployment excludes the economically inactive- there are often complex reasons for people not searching for work.
Causes of hidden unemployment
-Many long-term unemployed give up the active search for work and then become economically inactive
-A large cohort of people are sidelined onto disability benefits with one or more chronic illnesses- this has risen in the uk since the pandemic
- A growing number of people are non employed because they must care for elderly relatives- they may have to switch from full to part time work
- There also has been a rise in self-employment, people working on zero hour contracts and agency work as part of the Gig economy
Hidden unemployment
Hidden unemployment is also known as disguised unemployment. The number of people who do not have work but who are not counted in government reports, for example, people who have stopped looking for a job and people who work less than they want to.
Discouraged workers
Discouraged workers constitute one group of inactive work-seekers. These are persons who have ceased to seek work because they believe there are no suitable available jobs. Included in hidden unemployment
Why is youth unemployment relatively high
-Lack of experience: Young people may have fewer work experiences making it harder for them to find jobs. (They have weaker human capital)
-Lack of education or training: Some young people may not have the skills or qualifications needed for the jobs available.
-Age discrimination: Employers may be less likely to hire young people, who are perceived as being less reliable or motivated than older workers.
-Economic downturns: When the economy is struggling, young people are often the first to be laid off or have their hours reduced.
-Automation and technological advancements: As technology advances, jobs are being replaced by machines, especially retail.
