Unit 4 - Chapter 19 - Unemployment

Question 1

Define labour force

Answer 1

Labour force: people who are of working age, able and willing to work, and are actively seeking for work.

Question 2

Define unemployment

Answer 2

Unemployment occurs when people of working age are both willing and able to work but cannot find employment.

Question 3

Define Economically inactive population

Answer 3

Economically inactive population is those of working age but are not in the labour force as they are either not actively seeking for work or they are not willing to work.

Examples include full-time students, the army force, discouraged workers, the early retired and homemakers

Question 4

Define Economically active population

Answer 4

Economically active population is those in the labour forece. They are of working age, willing to work and actively seeking for work

Question 5

How to calculate Labour force participation rate

Answer 5

The labour force participation rate refers to the percentage of the total population of working age who are actually classified as being part of the labour force. For most economies, the rate is usually between 50% and 70%.

Labour force participation rate=
(Number of people in the labour force)/(Number of people of working age)

Question 6

What is the Labour force participation rate for most countries

Answer 6

For most economies, the rate is usually between 50% and 70%.

Question 7

How does demographics (population structure) affect the labour force participation rate

Answer 7

labour force participation rate can be low if:
- 年轻人：Higher participation rate in higher education
- 老龄人：A relatively large proportion of workers deciding to take early retirement
- 女人：The contribution of women in the labour force is constrained by social and cultural factors

The size of labour force is determined by
Birth rate, death rate, fertility rate

Question 8

How does economic growth affect the labour force participation rate

Answer 8

labour force participation rate may decrease during Economic recession, as it becomes hard to find jobs. Some become discouraged workers. Some become structurally unemployed.

Question 9

How does government benefits affect the labour force participation rate

Answer 9

State benefits is a disincentive to work.

Question 10

How does government benefits affect the labour force participation rate

Answer 10

State benefits is a disincentive to work. The opportunity cost of staying out of the labour force is the difference between wages and benefits provided to those not in the labour force, such as food tickets and free housing. The more generous these benefits are, the lower the OC of staying out of the labour force, and the lower the labour force participation rate.

Question 11

what is the level of unemployment

Answer 11

the number of people unemployed

Question 12

what is the absolute level of unemployment

Answer 12

the number of people unemployed

Question 13

Define unemployment rate

Answer 13

the unemployment rate is the number of unemployed people as a percentage of the labour force.

Unemployment rate= (Number of people unemployed)/(Number of people in the labour force)

Question 14

Identify the FOUR problems of the unemployment statistics.

(reasons why we cannot just look at the number and decide if it is a good thing or a bad thing)

Answer 14

1. discouraged workers, the level of unemployment and the unemployment rate will be too optimistic.
2. when lots of people join the labour force, the level of unemployment and the unemployment rate will be inflated (exaggerated, pessimistic).
3. does not reflect duration of unemployment
4. does not reflect work pay, exact types of work (e.g. part-time, low skilled, repetitive)

Question 15

how does discouraged workers distort the unemployment rate statistics?

Answer 15

A higher number of discouraged workers will distort the unemployment rate. For example, if the size of labour force is 100, and 20 are unemployed. UR = 20%. In the next month, if 10 of the unemployed become discouraged workers and leave the LF, then the UR will become 10/90 = 11%. The unemployment rate has dropped significantly, but it does not reflect the reduction in labour supply and the challenge for those facing structural unemployment.

Question 16

define discouraged workers

Answer 16

Discouraged workers are those who are out of the labor force may want to work. They are are included in the “marginally attached to the labor market” category.

Question 17

explain why the types of job matters (so that we cannot rely on looking at unemployment numbers solely)?

Answer 17

Sometimes people become employed again because they have difficulties finding full-time jobs and they have to accept part-time jobs. The unemployment rate is lower, but it does not reflect the lower income and hence the lower living standard. The workers experience underemployment. They may be in part-time jobs when they want full-time jobs or they may be in jobs that do not fully match their talents.

Question 18

identify two methods of measuing U

Answer 18

(1) Labour force survey (问卷调查, LFS)：直接问，你在不在工作，有没有找工作等等，统计出来有多少人没工作
(2) Jobless claims (申请失业金的人数) [claimant count method]

Question 19

explain the claimant count in details

Answer 19

Claimant count: a measure of unemployment based on those claiming unemployment benefits

advantages ✔

• cheap and quick to calculate as it is based on information that the government collects as it pays out benefits

✖
* May overestimate: Some of those receiving unemployment benefits may not be actively seeking employment (voluntary unemployment) and some may be working and so claiming benefit illegally作弊，其实偷偷地有工作
- For example, US federal investigator estimated $45.6 billion in pandemic unemployment benefit fraud.
- May underestimate: there may be people who are actively seeking employment but who do not appear in the official figures. These groups may include those above retirement age, those on government training schemes and those who choose not to claim benefits.
- Affected by criteria change: As this measure is based on those receiving benefits, it changes every time there is a change in the rules on who qualifies for unemployment benefit.

Question 20

explain the labour force survey method in details

Answer 20

Labour force survey: a measure of unemployment based on a survey that identifies people who are actively seeking a job. This includes as unemployed all people of working age who, in a specified period, are without work, but who are available for work in the next two weeks and who are seeking paid employment
✔
* picks up some of the groups not included in the claimant count
* It is based on internationally agreed concepts and definitions, so it makes international comparisons easier
* More information, such as the qualifications job seekers can be found

✖
* The data are more expensive and time-consuming to collect than the claimant count measure.
* As the data are based on a sample survey, they are subject to sampling error and to a multitude of practical problems of data collection.
* May underestimate: people may lie about their job status. 会说没工作，但是其实在part-time

Question 21

explain the labour force survey method in details

Answer 21

Labour force survey: a measure of unemployment based on a survey that identifies people who are actively seeking a job. This includes as unemployed all people of working age who, in a specified period, are without work, but who are available for work in the next two weeks and who are seeking paid employment

✔

• picks up some of the groups not included in the claimant count
• It is based on internationally agreed concepts and definitions, so it makes international comparisons easier
• More information, such as the qualifications job seekers can be found

✖

• The data are more expensive and time-consuming to collect than the claimant count measure.
• As the data are based on a sample survey, they are subject to sampling error and to a multitude of practical problems of data collection.
• May underestimate: people may lie about their job status. 会说没工作，但是其实在part-time

Question 22

Identify four types of frictional unemployment

Answer 22

(1) Voluntary unemployment
(2) Job search unemployment
(3) Casual unemployment
(4) Seasonal unemployment

Question 23

explain voluntary unemployment

Answer 23

This occurs when workers are not willing to accept jobs at the current wage rate and working conditions.

• This form of frictional unemployment may be influenced by how the level of unemployment benefits compares to low wages.
• If the amount workers can earn in employment is less than they can receive in benefits, some workers may decide to stay unemployed. In most countries, the amount of unemployment benefit workers receives falls after a period of time.

Question 24

explain job search unemployment

Answer 24

workers do not accept the first job or jobs on offer but spend some time looking for a better paid job. The provision of more and better-quality information may reduce search unemployment

Question 25

explain casual unemployment

Answer 25

It occurs when workers are out of work between periods of employment, e.g. actors and construction workers

Question 26

explain seasonal unemployment

Answer 26

demand for workers fluctuates according to the time of the year. During periods of the year, people working in, for example, the tourism, hospitality, building and farming industries may be out of work.

Question 27

structural unemployment’s major reason

Answer 27

skill mismatch

Question 28

is structural U a supply-side, or a demand-side issue?

Answer 28

supply-side

Question 29

is frictional U a supply-side, or a demand-side issue?

Answer 29

supply

Question 30

define structural U

Answer 30

Structural unemployment: unemployment caused as a result of the changing structure of economic activity. If workers cannot move from one industry to another industry, due to a lack of geographical or occupational mobility (their skill mismatch), they may become structurally unemployed, even when the employers are actively seeking workers.

Question 31

identify THREE types of structural U

Answer 31

(1) Regional unemployment
(2) Technological unemployment
(3) International unemployment

Question 32

explain regional unemployment

Answer 32

this types of unemployment occurs when:
When declining industries are concentrated in a particular area of the country.
For instance, a decrease in demand for gold could result in a decline in the South African gold mining industry and cause workers in the gold mining areas, including Witwatersrand, to lose their jobs

Question 33

explain technological unemployment

Answer 33

this types of unemployment occurs when:
New technologies are likely to require different skills than old technologies
For example, the development of drones and robots delivering shopping is resulting in some delivery drivers losing their jobs

Question 34

explain international unemployment

Answer 34

this types of unemployment occurs when:
when workers lose their jobs because demand switches from domestic industries to more competitive foreign industries.
For instance, the number of steel and aluminium workers in the UK has fallen significantly over the past 40 years as these industry has declined. In contrast, during this period, similar industries in China have expanded, creating more jobs.

Question 35

define cyclical U

Answer 35

Cyclical unemployment: unemployment that results from a lack of aggregate demand. Cyclical unemployment will affect the whole economy, with job losses occurring across a range of industries. It is the deviation of the actual rate of unemployment from the natural rate.

Question 36

is cyclical U a supply-side, or a demand-side issue?

Answer 36

demand

Question 37

explain how cyclical U (arises)

Answer 37

① AD lower, cause labour demand to fall. AD shift to the left, the new labour demand curve is AD1 【先描述AS-AD的变化】
② At the old equilibrium wage rate W, there will be an over-supply of labour, of size XQ 【再因而描述labour market的变化】
③ This will drive wage down. 【有excess supply of labour，market wage才会下降】until supply is equal to demand again at the new equilibrium, with wage rate being… the quantity of labour being….

As a result, the level of unemployment increases

Question 38

what are the consequences of unemployment for the individual?

Answer 38

Disadvantages

• Lose income hence lower living standard.
• If a person is being unemployed for a long time, he or she will lose skills and it becomes more difficult to find a new job. The individuals will experience mental stress. The person might even become discouraged and give up looking for a job.

Advantages

• For a small number of people, being frictionally unemployed for a short period of time gives them more opportunities to look for a better-paid or a more promising job.

Question 39

what are the consequences of unemployment firms?

Answer 39

Disadvantages

• If unemployment rate has risen a lot, facing lower income, aggregate demand also drops. Producers will suffer from less sales.

Advantages

• Can select among a larger pool of potential employees, without facing pressure of higher wages
• Frictional unemployment allows the economy to respond quicker to changes in demand and supply conditions, since when firms need to hire workers, there will always be someone still looking for a more desirable jobs.

Question 40

what are the consequences of unemployment for the government

Answer 40

Disadvantages

• The tax revenue received by the government will be lower than with a higher level of employment.
• Need to pay higher U benefits, which has an OC.

Question 41

what are the consequences of unemployment for the economy

Answer 41

Disadvantages

• The economy will experience an opportunity cost as output will be below its potential level

Advantages

• can reduce inflationary pressure when the economy is overheating

Question 42

分析U好坏可以使用的角度

Answer 42

• for individual
• for firms
• for gov
• for economy

Question 43

Evaluate U的角度

Answer 43

The consequence of U depends on

• Rate: A high rate of unemployment means that the economy is producing well inside its production possibility curve, forgoing a large quantity of output.
• However, A satisfying level of unemployment is not 0, because a certain level of unemployment will always exist due to reasons such as job search unemployment or better labour protection. This is instead beneficial to the employees. It also prevent wage from going in an upward spiral, which helps to dampen production cost and inflationary pressure.
• Duration: The chances of workers gaining employment tends to fall the longer they are out of work, either because skills become outdated, or because individuals become discouraged workers. Employers may also be reluctant to employ those who have been out of work for a relatively long time.
• Type: Frictional unemployment is considered the least serious type of unemployment. Indeed, some level of frictional unemployment is unavoidable in a changing economy. In contrast, cyclical unemployment can cause serious problems. Cyclical unemployment may be of a high rate and last a long period of time. Structural unemployment, especially for the younger population, will be more problematic as this indicates that the country may suffer persistently,
• Reality: Statistics regarding the level of unemployment is also difficult to get, and it may not inaccurate (REMEMBER TO explain and give an exampl;es)
• In conclusion: What governments want to achieve is to avoid structural and cyclical unemployment and to keep frictional unemployment as low as possible.