Week 2: Unemployment

Question 1

What is the working-age population?

Answer 1

those aged 16+ who are not in the military or institutionalized

Question 2

What does employed mean?

Answer 2

Working-age people who are working

Question 3

What does unemployed mean?

Answer 3

Working-age people without jobs who are trying to get jobs

Question 4

Who are the labour force?

Answer 4

The employed + the unemployed

Question 5

What must you be, to be counted among the unemployed? (4)

Answer 5

part of the working-age population
not currently working
actively searching for work
able to accept a job if it were offered

Question 6

What is the activity rate?

Answer 6

Employed + Unemployed / Working age population

Question 7

What is the inactivity rate?

Answer 7

1 - (activity rate)

–> 1 - (Employed + Unemployed / Working age population)

Question 8

What does a dynamic labour market make it easier for people to what?

Answer 8

find new jobs

Question 9

Although most unemployment spells are short, when do they lengthen?

Answer 9

during deep recessions

Question 10

Who is referred to as long-term unemployed?

Answer 10

People who have been unemployed for six consecutive months or longer

Question 11

What makes it difficult for the long-term unemployed to find work?

Answer 11

discrimination and skill loss

Discriminated against potential employers, workers who have similar skills but a long spell of unemployment are less likely to be given an interview or hired

also, long-term unemployed may lose skills + connections the longer they’re out of work

Question 12

Many workers in the UK are ‘underemployed’, what does this mean?

Answer 12

they would prefer to work more hours, or to take a new job with more hours

in recent years, the gap between unemployment and underemployment in the UK has increased

Question 13

Why do unemployment rates NOT tell the whole story?

Answer 13

some people not in the labour force would work under the right conditions

many employed people are underemployed

Question 14

What are most job seekers?

Answer 14

employed

they’re looking to move to another job

Question 15

What are the 3 unemployment types?

Answer 15

Frictional Unemployment

Structural Unemployment

Cyclical Unemployment

Question 16

What is frictional unemployment?

Answer 16

Unemployment due to the time it takes for employers to search for workers and for workers to search for jobs

Question 17

What are the causes of frictional unemployment?

Answer 17

the efficiency of matching firms with workers

skills mismatch

unemployment insurance (universal credit)

Question 18

Why is the efficiency of matching firms with workers a cause of frictional unemployment?

Answer 18

because the costs of matching firms with workers is high, thus inefficient, thus there will be higher unemployment

Identifying good employment matches is difficult for both firms + workers
recruitment agencies, job posting and interviews are all costly for the firm

job search, networking and interviews are costly for workers

Question 19

Why is skills mismatch a cause of frictional unemployment?

Answer 19

the changing mix of technology + market opportunities changes the skills required by firms

this can generate a mismatch between workers’ skills + the skills that a firm needs
mismatch increases unemployment

Question 20

Why is unemployment insurance (universal credit) a cause of frictional employment?

Answer 20

When workers have more financial security, they can take longer to look for the RIGHT job, not the just the NEXT job

Unemployment insurance increases the opportunity cost of work

Question 21

What is structural unemployment?

Answer 21

unemployment that occurs because wages don’t fall to bring labour demand & supply into equilibrium

Question 22

What causes structural unemployment?

Answer 22

Efficiency Wages
(increasing wages to encourage greater productivity increases applicants / people who want to work there, motivates people already working there to keep working hard so they don’t lose jobs, but there isn’t enough jobs available to hire everyone)

Institutional causes:
Unions can keep wages high for some workers
Job protection regulations make it difficult to fire workers
Minimum wage laws

Question 23

What is cyclical unemployment?

Answer 23

unemployment that is due to a temporary downturn in the economy

Question 24

What are alternative measures of unemployment?

Answer 24

underemployed

marginally attached

involuntarily part time

Question 25

What is the labour force participation rate?

Answer 25

= (labour force / working-age population) x 100

the share of the working-age population that is either employed or unemployed

Question 26

What is the unemployment rate?

Answer 26

= (unemployed / labour force) x 100

the share of the labour force that is unemployed

Question 27

What is the equilibrium unemployment rate?

Answer 27

the unemployment rate to which the economy tends to return in the long run

Question 28

What does marginally attached mean?

Answer 28

Someone who wants a job - and has looked for a job within the past year - but isn’t counted as unemployed because they aren’t currently searching for work

Question 29

What does involuntarily part time mean?

Answer 29

someone who wants full-time work but is working part-time bc they haven’t found a full-time job

Question 30

What are the costs of unemployment? (6)

Answer 30

Lower wages and worse career opportunities

Permanent joblessness can arise from periods of high unemployment

Lower tax revenue & higher gov spending

Unemployment is isolating & painful

Long-term unemployment is associated with worse outcomes

Children whose parents experience unemployment suffer