Unit 2 - Unemployment

Question 1

What is unemployment?

Answer 1

A person who is willing and able to work but cannot find a job.

Question 2

What is the level of unemployment?

Answer 2

The level of unemployment is the number of people who are willing and able to work
but cannot find a job.

Question 3

What is the rate of unemployment?

Answer 3

The rate of unemployment is the level of unemployment expressed as a
percentage of the working population.

Question 4

What does it mean to be economically inactive?

Answer 4

These are people of working age who are not actively seeking employment, for example, students or stay-at-home parents.

Question 5

What are the 2 measures of unemployment?

Answer 5

The Claimant count and The Labour Force Survey.

Question 6

What is the Claimant count?

Answer 6

The claimant count is the total number of people claiming unemployment benefits.

(Those claiming benefits must declare that they are out of work, capable of work, available for work, and actively seeking work during the week in which their claim is made.)

Question 7

Is the Claimant Count accurate?

Answer 7

The claimant count is not considered as accurate a measure as the Labour Force Survey.

Question 8

What are the advantages of the Claimant Count?

Answer 8

-It will give a nationwide result
-It can provide quick up to date data

Question 9

What are the disadvantages of the Claimant count?

Answer 9

-Not all unemployed are eligible to claim benefits.
-Some unemployed chose not to claim
-The government can change the eligibility criteria and this will change the unemployment figures

Question 10

What is the Labour Force Survey?

Answer 10

The Labour Force Survey is a sample survey of people living in private households, students’ halls of residence and NHS accommodation.

Question 11

Describe the Labour Force Survey?

Answer 11

Around 150,000 people are surveyed. The survey is conducted every quarter and asks respondents about their personal circumstances and their activity in the labour market. The results of the sample are collated and then inferences are drawn to represent the whole population.

Question 12

What are the advantages of the Labour Force Survey?

Answer 12

-It looks at a large range of people in different financial states
-The sample size is large
-Can be used to compare against other countries

Question 13

What are the disadvantages of the Labour Force Survey?

Answer 13

-It is self-reporting
-There will be an error present with the data.

Question 14

What is seasonal adjustment and what will it reveal?

Answer 14

This is where the seasonal effects are taken out of the unemployment data. Seasonally adjusting this figure will reveal underlying employment trends.

Question 15

What are the causes/types of unemployment?

Answer 15

Structural
Frictional
Cyclical/ demand deficient
Seasonal
Technological
Real Wage (Classical)
Regional

Question 16

What is structural unemployment?

Answer 16

This happens when there is a decline in demand in an industry and changes in the structure of an economy. This could be because of foreign competition.

Question 17

What is frictional unemployment?

Answer 17

This unemployment happens because people are moving between jobs. The time taken to search for jobs can be a factor that affects this type of unemployment. This might arise from occupational and geographical immobility

Question 18

What is cyclical unemployment?

Answer 18

This unemployment occurs because of a fall in economic growth. This means firms will cut back on labour as demand falls.

Question 19

What is seasonal unemployment?

Answer 19

Seasonal unemployment happens because some industries such as retail and agriculture only need a lot of workers at certain times of the year.

Question 20

What is technological unemployment?

Answer 20

This is linked to structural unemployment and occurs because labour is substituted for machinery.

Question 21

What is real wage unemployment?

Answer 21

This occurs when wages are sticky above market clearing level/equilibrium. This causes a surplus of workers, i.e. unemployment. More people are willing to be part of the labour market at this wage, but employers are less willing to take on workers at this wage level because it costs more. Wages can be above equilibrium due to trade union power, minimum wage legislation, benefits being too high or benefits being too easy to claim.

Question 22

What is regional unemployment?

Answer 22

This is often caused by a particular industry located in a particular area, facing long-term decline in demand for its products, because they are obsolete or cannot compete with foreign products.

Question 23

What is the impact of unemployment on individuals?

Answer 23

-They will have a lower income because they are on benefits.
-They will lose skills the longer they are unemployed making it harder for them to find work.
-They might become socially excluded, which means they cannot afford to socialise as much.
-Unemployment can cause mental and physical health problems due to increased stress and social isolation.

Question 24

What is the impact of unemployment on firms?

Answer 24

-There will be less demand for their goods and services so they will get lower profits.
-They can offer lower wages because there will be many workers available to work.
-Workers may be more productive as they may work harder to ensure they keep their job

Question 25

What is the impact of unemployment on the government?

Answer 25

-They will have to spend money on benefits.
-They will get less tax revenue because less people are paying income tax and people will reduce their purchases so this means less VAT revenue too.
-There could be an associated rise in crime, which will cost money to deal with.
-The NHS might require greater funding to deal with an increase in poor health.
-Due to low demand, national income could fall.

Question 26

What are the governments economic aims?

Answer 26

Stable economic growth

Low unemployment

Low stable inflation

Balance of Payments Balance

Redistribution of income

Question 27

Why does the government aim for stable economic growth?

Answer 27

The government wants economic growth to be sustainable (2-3%).

Question 28

Why does the government aim for low unemployment and not zero?

Answer 28

The government wants a low rate of unemployment. It is not realistic to have zero unemployment as people are always changing jobs (frictional unemployment).

Question 29

What is the current target rate for inflation?

Answer 29

The current target rate of inflation for the UK is 2% (+/- 1%). This is set and managed by the Bank of England.

Question 30

Why does the government aim for balance of payments balance?

Answer 30

This means that the money flowing out of the UK abroad is equal to the money flowing into the UK from abroad.

Question 31

Why does the government aim for redistribution of income?

Answer 31

This means that the government will try to reduce inequality by taxing the high income earners proportionately more than those on low incomes.