UNIT 3 AOS 2 - part 3 - Full employment

Question 1

• UNN Formula
• Participation rate formula
• Underutilization rate

Answer 1

• UNN% = [Unemployed/Labour force] * 100
• PAR% = [Labour force/Working age] * 100
• under% = [(unem+underem)/labour force] * 100

Question 2

Goal of full employment

Answer 2

The goal of full employment refers to the:Maximum sustainable rate of reduction of unemployment by lifting the pace at which economic growth can be maintained without running into inflationary and external pressures. Economists use the NAIRU: 4.25% as the acceptable rate of full employment. The zone of unemployment is between 4-4.5%.

Question 3

Employed + Unemployed DEF

Answer 3

EMPLOYED:
* over 15 years
* working (1 hour in the survey week)

unn:
* over 15 (inclusive)
* actively seeking employment

Question 4

Cyclical unemployment + Structural unemployment

and diff for this

how to reduce Structural unemployment?

Answer 4

Cyclical:
* fluctuations in aggregate demand (and economic activity)
* Job loss caused by downswings in the business cycle
* use full domino analysis (AD)

Structural unemployment
* Caused by changes to the supply side factors that change the nature of work and cause a mis-match in skills available and those sought by employers (i.e. Automation, off-shoring, outsourcing)
* reduce: subsidies
* reduce: employed long term unemployed

diff: the goal of full employment (NAIRU) uas no cyclical unemployment

Question 5

• Frictional unemployment
• Underemployment (disguised employed)
• Hidden unemployment (discouraged)

def

Answer 5

Frictional
* Caused by movement between jobs and those transitioning into the labour force

Under
* employed but prefer to be working more hours

hidden
* Caused by discouraged job seekers who are not actively looking - due to poor market conditions, lack of skills etc.
* also caused by downturns in the business cycle and other factors
* [not included in UNN stat]

Question 6

Long term unemployment

mostly what?

Answer 6

• unemployed for 52 weeks
• disproportionally made up of people over 50 years of age

mostly:
* structural unemployment
○ older
○ male
○ lack formal education

Question 7

relationship between par% and UNN%

Answer 7

↑par%
[short term]
= ↑UNN (as they are classified as “unemployed” until they find work)

[long term]
= ↓ UNN
= growing labour force (supply labour increase)
= no longer need to pay higher wages to retain or attract workers
= downwards pressure on wages and/or ↑ productivity
(AS analysis )
= ↑demand for labour
= create additional employment and reducing UNN% Overall

↓UNN%
= ↑PAR% (some job seekers will be encouraged about job prospects(opportunies) and enter the labour force)

but when unn↑
= people see ↓ people employed
= ↓ confidence to find a job
= ↓stop actively looking for job
= hidden unemployed
= no longer part of workforce
↓ dec par%

Question 8

unemployment rate low (under NARIU - overachieving)
effect on inflation

forAS and AD

Answer 8

[Demand inflation]
(move from transfer to factor income)
* ↑disposable incomes
* increase propensity to consume
* higher C+I
* ↑ AD
* D>S
demand inflationary pressures

[cost inflation]
* ↓UNN
* low supply of labour
= tighter labour market (+skill shortages)
= producers pay more to attract and retain workers
* ↑ wage costs
* ↑ cost of production
* ↓profitability
* ↓willingness to produce g/s
* ↓AS
* ↓EA
* ↑ cost inflationary pressures (maintain profit margin so pass on higher costs to consumers)
(also: wage/price spiral)

Question 9

unemployment rate high (over NARIU)
effects

Answer 9

[REAL GDP]
↑ UNN
* ↑ labour not utilized
* reduce productive capacity

[↑UNN (supply)
* Loss of skills (structural UNN)
* supply side shortages]

Then:
= ↓ production of G/S
= ↓ SSEG
= ↓incomes

[tax revenue]
* ↑ UNN
* (move from factor to transfer income)
* ↓income tax receipts ~50%(+ company tax receipts)
* ↓ govt spend on essential g/s
* less expenditure and collective goods health + education
* ↓NMLS
(also if spending remains > revenues = govt budget deficit will explode)