Unit 10.1 Flashcards
Define Unemployment
Refers to people of working age who are actively looking for jobs but who are not employed
How to measure unemployment
(Number of unemployed/ The labor force) x100
What are the issues with measuring unemployment?
- No distinction between full-time and part-time.
- No distinction on type of work done.
- No inclusion of informal work.
- Doesn’t account for differences between regions/ethnicites.
What are the kinds of problems created by unemployment?
Economic
Loss of real GDP
(less people working leads to less output then the economy can produce)
Loss of income for unemployed workers
(Decreases their quality of life)
Loss of tax revenue for the government
(less people working, less income, hence less taxes paid)
Cost to government of unemployment benefits
(if government pays benefit to unemployed people, more unemployment means greater cost, massive opportunity cost.
Larger budget deficit/lower budget surplus
If gov expenditure rise but government revenue decreases it will lead to a budget deficit, leads to government debt.
Increased unequal distribution of income
More unemployment within certain ethnic groups or regional groups over long periods of time may lead to social unrest. As some population groups may be more disadvantaged then others.
Personal and social costs
Personal problems:
Increased indebtedness due to more borrowing and less paying back, lead to lower health levels and suicide
Social problem increase
High rate of unemployment can lead to higher crime rate, drug use and homelessness due to growing poverty, especially when unemployment is unequally distributed
Define structural unemployment.
- People without jobs.
- Despite being willing and able to work.
- As a result of changes in the demand for particular labour skills.
- Or the geographical location of industries.
Define frictional unemployment.
- People without jobs.
- Despite being willing and able to work.
- As they are between jobs.
- They have been fired or are looking for better employment.
Define seasonal unemployment.
- People without jobs.
- Despite being willing and able to work.
- As a result of seasonal changes in the demand for labour in certain industries.
- Due to changes in needs.
Define cyclical unemployment.
- People without jobs.
- Despite being willing and able to work.
- During downturns in the business cycle (deflationary gaps).
- Due to weak aggregate demand.
Define inflation.
The sustained increase in the general price level of goods and services in an economy.
Define disinflation.
A fall in the rate of inflation.
Define Market rigidity
Market rigidities refer to factors or conditions in a market that make it difficult for prices, wages, or employment levels to adjust quickly and smoothly in response to changes in supply and demand
What are 4 labour market rigidities?
- Minimum wage legislation.
Leads to higher then equilibrium wages (leads to a labour surplus (can be shown in a diagram with price of labour and supply of labour, just like excess supply except this represents unemployment) - Labour union activities.
Same effects as minimum wage - Employment protection laws.
Makes it costly for firms to fire people as they nee to pay compensation. - Generous unemployment benefits.
Leads to a decreased demand for labour, shifting demand for labour curve left.
In the neoclassical model explain the employment types at a recessionary gap, full employment and inflationary gap
Right part of the model, is inflationary gap, zero cyclical unemployment; unemployment<natural unemployment because of structurally, frictionally and seasonally unemployed find temporary employment.
At potential output (GDP), unemployment equals the sum of structural + frictional+seasonal unemployment (natural unemployment) and there is 0 cyclical unemployment.
Recessionary gap: unemployment> natural rate of unemployment and there is also cyclical unemployment.
