Topic 2.3 - Employment

Question 1

What is unemployment?

Answer 1

Proportion of population who don’t have a job but are actively seeking employment

Question 2

How do you work out the unemployment rate?

Answer 2

Unemployed/labour force x 100

Question 3

What is meant by the policy objective of full employment?

Answer 3

Situation where unemployed are active and able to work and find employment (at going wage rates)
Maximise production and use of scarce resources
Doesn’t mean that unemployment will be 0

Question 4

What are the two ways that unemployment is measured?

Answer 4

Claimant count (CC)
Labour force survey (LFS)

Question 5

How is unemployment measured, claimant count?

Answer 5

Add up people on benefits/job seekers allowance

Counted monthly

Question 6

How is unemployment measured, labour force survey?

Answer 6

Measures % of workforce who are without jobs but are available for work
It uses the international labour organisation definition of unemployment
- “people without a job, want a job, sought work in last 4 weeks, available to start in 2 weeks”
Measure used officially in UK
Published by ONS every month

Question 7

What is frictional unemployment?

Answer 7

People who are classed as unemployed when moving between jobs
Doesn’t mean economy is weak - could be moving to a better job
Short term

Question 8

What is structural unemployment?

Answer 8

Arises due to a change in pattern of economic activity within an economy
May be deindustrialisation, leaves some workers unemployed and unable to find work in new industries with different skill requirements
(Occupational immobilities - changes in economy lead to shift in demand for skilled labour, older may not feel able to/find it difficult to learn new skills)
Harder to fix, most damaging
Long term

Question 9

What is cyclical unemployment?

Answer 9

Due to period of negative economic growth or slowdown in economic cycle
Tends to rise sharply in recession
Not as bad as structural

Question 10

What is demand deficient unemployment?

Answer 10

Deficiency of AD in the economy
Workers made redundant to reduce output in response to less demand from consumers
Damaging as workers from similar industries or regions lose jobs at same time
Short run

Question 11

What is seasonal unemployment?

Answer 11

People unemployed at particular times of the year when demand is lower than usual for labour
Short term

Question 12

What is wage rate inflexibility?

Answer 12

Wage rates are inflexible
They’re reviewed each year so theres inflexibility in between
Slow at responding to changes in supply and demand

Question 13

What is voluntary unemployment?

Answer 13

Workers choose not to work
May be due to current wages or early retirement
Wages not easily changed so people end up staying out of work

Question 14

What is the natural rate of unemployment?

Answer 14

Rate of unemployment when labour market is at equilibrium, in a healthy economy, full employment level
Proportion of workers who are voluntarily unemployed

Question 15

What are the consequences of unemployed workers/households? (7 points)

Answer 15

• need to rely on social security support
• foregone earnings/income
• less personal wealth, lower standards of living
• health issues - poor diet, stress
• marriage problems
• lack of sense of purpose/loss of dignity
• poverty - children effected, fewer educational tools, lower expectations

Question 16

What are the consequences of unemployment to society? (4 points)

Answer 16

• lost output
• waste of resources
• within PPC, not full capacity, not efficient
• lower material standards of living

Question 17

What are the consequences of unemployment to the government? (3 points)

Answer 17

• lose tax revenue
• increased spending on benefits
• pressure on gov spending - healthcare, crime, marital breakups (opportunity code, money could be spent elsewhere)

Question 18

What are the consequences of unemployment to firms? (2 points)

Answer 18

• sell less = less profit

- negative multiplier effects

Question 19

What is the hysteresis effect?

Answer 19

Happens when a sustained period of low AD can lead to a permanent damage to the supply side of the economy
Employers less willing to take on workers
Employees may be discouraged
May increase costs on other society members through vandalism and crime

Question 20

What are the costs of unemployment on other economies? (2 points)

Answer 20

Exports reduced (less bought if more unemployed)
Increased immigration (people move to places with more opportunities)

Question 21

What are the potential benefits of unemployment? (4 points)

Answer 21

More time to look for jobs/better jobs
Easier to recruit workers for firms who are expanding
Less pressure on wage increases
Improved efficiency of production/productivity

Question 22

What does the effect of unemployment depend on? (3 points)

Answer 22

How many unemployed
Which type of unemployment - some worse than others
Opportunity cost of unemployment benefits

Question 23

What is the GIG economy?

Answer 23

Money from apps

Question 24

What is full employment?

Answer 24

Doesn’t mean 0 unemployment
Likely to be some frictional
When theres no demand deficient or cyclical unemployment
Where all who are willing and able to work are employed

Question 25

What are the positive effects of full employment? (4 points)

Answer 25

Achieve potential output in the economy
Avoids negative consequences of unemployment
Improves business and consumer confidence
Reduces gov welfare spending (benefits), more income tax so better budget position

Question 26

What are the negative effects of full employment? (3 points)

Answer 26

Vulnerable to demand pull inflation when at full capacity
Full employment may lead to wage inflation, which can lead to cost push inflation
Attempts to achieve full growth may lead to booms in economic cycle, unsustainable

Question 27

Evaluating the consequences of achieving full employment

Depends on:

Answer 27

Whether growth is sustainable, is sustainable doesn’t have to be inflationary
Skills of the work force
Measure of full employment may not be a true representation of whether economy is at capacity - may be part time, doesnt include discouraged workers