Week 3 Lectures - Unemployment

Question 1

State the basic differences between people that are employed, unemployed and not in the labour force (economically inactive)

Answer 1

• Employed people are people who work
• Unemployed people are people who want to work and are actively looking for a job
• People who are not in the labour force are both not employed and unemployed

Question 2

What are discouraged workers?

Answer 2

• Discouraged workers are individuals who would like to work but have given up looking for a job
• They would accept a job if offered one

Question 3

Does all unemployment end with the job seeker finding a job?

Answer 3

No, half of all spells of unemployment end when the unemployed person leaves the labour force and becomes economically inactive

Question 4

What are two reasons as to why people may leave the workforce?

Answer 4

• They become discouraged workers
• They may be subject to long-term illness which may prevent them from working even if they would like to

Question 5

How is the labour force calculated?

Answer 5

Labour force = Number of employed people + Number of unemployed people

Question 6

What is the unemployment rate and state the formula used to calculate it

Answer 6

• The unemployment rate is the percentage of the labour force that is unemployed
• Unemployment rate = Number of unemployed/Labour force*100

Question 7

What is the labour-force participation rate and state the formula used to calculate it

Answer 7

• The labour-force participation rate is the percentage of the total adult population that is in the labour force
• Labour-force participation rate = Labour force/Adult population*100

Question 8

Explain the reason behind the fall in men’s labour force participation in recent times

Answer 8

• Young men stay in school longer
• Older men retire earlier and live longer
• With more women being employed, more fathers now stay at home to raise their children

Question 9

What are the two main ways of measuring unemployment?

Answer 9

1- The Claimant Count (CC): This is a measure of the number of people claiming unemployment benefits relative to the number of people paying income tax
2- The labour force survey (LFS): This involves asking people directly

Question 10

By which categories and demographics does the unemployment rate differ by?

Answer 10

The rate of unemployment differs by age, sex and ethnicity etc

Question 11

What is the natural rate of unemployment?

Answer 11

The natural rate of unemployment is the rate of unemployment around which the unemployment rate fluctuates

Question 12

What is cyclical unemployment?

Answer 12

Cyclical unemployment is a short-run deviation of unemployment from its natural rate (often called the gap)

Question 13

What are the two main components of the natural rate of unemployment?

Answer 13

1- Structural unemployment
2- Frictional unemployment

Question 14

What is structural unemployment?

Answer 14

Structural unemployment occurs when the number of jobs available in some labour markets is insufficient to provide a job for everyone who wants one

Question 15

What is frictional unemployment?

Answer 15

Frictional unemployment occurs when it takes time for workers to search for the jobs that best suit their tastes and skills

Question 16

What are some policies the government can use to reduce the time it takes for the unemployed to find jobs and retrain people with unwanted skills?

Answer 16

• Government run employment agencies
• Public training programmes and apprenticeship schemes

Question 17

What is the main drawback of introducing a minimum wage?

Answer 17

• Introducing a minimum wage can cause unemployment as it forces the wage to remain above the equilibrium level
• There is a higher quantity of labour supplied, a smaller quantity of labour demanded and so there is excess supply of labour (unemployment)

Question 18

Draw a diagram demonstrating how by introducing a minimum wage there will be unemployment

Answer 18

See slide 38 of lecture 3

Question 19

What are workers unions and what do they aim to do?

Answer 19

• Unions are worker associations
• They bargain with employers over wages, benefits and working conditions
• This results in higher wages (unionised workers earn 10-20% more than their non-unionised counterparts)
• Unions also make it more difficult for employers to lower salaries and fire workers

Question 20

What is the result of unions bargaining the wage above the equilibrium level?

Answer 20

• There will be unemployment
• Outsiders are worse off but insiders (members of the union) will be better off

Question 21

What are some arguments for worker’s unions?

Answer 21

• Unions are a necessary antidote to the market power of the firms that hire workers: In the absence of a union, firms pay lower wages and offer worse working conditions
• Unions help firms respond efficiently to worker’s concerns which maintains a happy and productive workforce