Week 14 - Unemployment Flashcards
Employment sections
A countries 16+ population can be split into
- Employed
- Unemployed
- Out of labour force
Employed
Someone who works full or part time or is on vacation/sick leave from a regular job
Unemployed
Someone who is unemployed but is actively seeking employment
Out of labour force
Someone who is not employed but is not actively seeking employment.
Labour force
Total number of people who are employed or unemployed in the economy
Unemployment rate
Unemployed population / size of labour force
The percentage of the labour force classified as unemployed.
Participation rate
Labour force / 16+ population
The percentage of the working population in the labour force
What are the 3 types of unemployment
Frictional, structural and seasonal / cyclical unemployment
Structural unemployment
Long-term and chronic unemployment that exists even when the economy is producing at the normal rate
Caused by lack of skills, language barriers and discrimination.
Structural unemployment has a higher cost than frictional unemployment because of the substantial long term losses it causes to society.
It causes loss of income for workers and loss of output for firms.
Frictional unemployment
Unemployment during the process of finding the right match between a worker and a job.
Short term unemployment caused when people transition between jobs. They may have multiple short term periods of unemployment between jobs before finding the right job for them and settling down.
Frictional unemployment is not very costly and can even result in improved efficiency as workers find the correct job for them, leading to better productivity.
Caused by job transitions, new workers, people moving and people changing their work-life balance.
Cyclical unemployment
Extra unemployment the happens during periods of recession. Recession causes a decline in demand for goods and services an economy produces leading to a decline in demand for labour and therefore unemployment.
Cyclical unemployment can also be caused by decreased consumer demand, business cycle fluctuations and financial crisis’s.
It can affect many industries and is usually short term however it can lead to a vicious cycle of unemployment - unemployment reduces spending, weakens economy, increase unemployment.
Costs of unemployment
Economic costs - lost wages, lost production, decreased taxes, increased transfers.
Psychological costs - lowers individual self esteem, causes family stress of decreased income and increased uncertainty.
Social costs - potential increases in crime and social problems.
The cost of unemployment is directly linked to the length of time a person has been unemployed.
Unemployment spell
The period of time in which an individual is continuously unemployed.
Duration of unemployment
The length of the unemployment spell.
Long term unemployment
Someone who has been unemployed for over 6 months
3 possible outcomes from short term unemployment
- Find a permanent job after a few weeks of searching. Has a low economic cost.
- Short term/ temporary job that leads to unemployment again. Chronic unemployment has similar costs to long term unemployment.
- Leave the labour force
Discouraged workers
Unemployment can cause discouraged workers who would like to have a job to but have not looked for work in the past 4 weeks because they believe there are no available jobs.
Involuntary part-time workers
Workers who work part time and would like a full time job but cannot find one.
Capitalism
An economic system where private businesses or individuals own and control property and production and trade output for profit.
Types of capitalism
Laissez-Faire capitalism: A form of capitalism with minimal government interference in economic activities. It reflects the idea that markets should operate freely without state intervention.
E.g., USA, UK
Administrative capitalism: A form of capitalism where the state plays a significant role in managing, regulating, or even directly participating in the economy. It combines capitalist market dynamics with bureaucratic control and policy interventions.
E.g., Germany, Italy, France, Australia, Japan
Socialism
An economic system where the means of production (factories, land, resources, etc.) are owned, controlled, or regulated by the community or the state to promote equality and social welfare.
Types of socialism
Administrative socialism: A socialist system where the state centrally plans and controls the economy, with little to no role for market forces. The government owns and manages major industries, setting production goals, prices, and wages.
E.g., Soviet Union, North Korea
Market socialism: A socialist system where enterprises are publicly or cooperatively owned but operate in a market-based economy, with supply and demand influencing prices and production.
E.g., China, Vietnam
Welfare states
A system in which the government actively protects and promotes the well-being of its citizens, particularly through social programs, public services, and economic redistribution.
It combines elements of capitalism and socialism, ensuring that while markets function, people have access to essential services like healthcare, education, and unemployment support.
Right wing economic opinions
The right argue for a Laissez-Faire capitalist approach to the economy where the governments job is to ensure free and competitive markets. They argue that free markets are the most efficient way to achieve economic prosperity.
Centre/ left wing economic opinions
The centre/ left argue that free markets take long periods of time to stabilise and reach equilibrium. They argue that government intervention to boost aggregate demand is necessary to bring the economy towards full employment. They argue that government intervention is needed to achieve full employment, reduced poverty and equality, and environment protection.
Neoliberalism
A political and economic philosophy that emphasizes free markets, privatization, deregulation, shrinking of the state, tax cuts and minimal government intervention in the economy.
Neoliberalism is only concerned with economic freedom. Individuals are responsible for the consequences of their own actions.
Benefits of neoliberalism
Economic efficiency - reduction in government intervention causes inefficient firms to fall out the market, leaving only efficient firms that produce goods at a reasonable price.
Cheaper goods - free market and free trade increases competition which puts pressure on firms to reduce prices and increase efficiency.
Lower taxes - reduced government intervention reduces the need for high taxes. This allows individuals more freedom to choose where they want to spend their income.
Increased investment - Businesses have higher incentives to improve efficiency and invest in more productive equipment.
Costs of neoliberalism
Deregulation, shrinking trade unions, tax cuts, privatisation and smaller states are all linked to rising inequality. Neoliberal countries have had fastest increase in incomes for the higher earners.
Causes relative income stagnation in the bottom half of income distribution - rich get richer and the poor stay poor.
Inequality allows winners use their influence and lobby on policymakers to rig the system to benefit themselves, increasing inequality.
Neoliberalism does not consider environmental importance - neoliberals are often sceptic of climate change because it would imply a need for regulation and an attack on individual freedom.
