7) Unemployment 2 -MB

Question 1

Define frictional unemployment

Answer 1

Unemployment associated with job search; that is, people who are between jobs

Question 2

Define structural unemployment

Answer 2

Unemployment that arises because of changes in the patterns of economic activity within an economy

Question 3

Define cyclical unemployment

Answer 3

Unemployment that arises during the downturn of the economic cycle, such as a recession

Question 4

Define demand-deficient unemployment

Answer 4

Unemployment that arises because of a deficiency of aggregate demand in the economy, so that the equilibrium level of output is below full employment

Question 5

Define seasonal unemployment

Answer 5

Unemployment that arises in the seasons of the year when demand is relatively low

Question 6

Define real wage inflexibility

Answer 6

An argument that if real wages do not adjust downwards, the result would be persistent unemployment

Question 7

Define voluntary unemployment

Answer 7

Situation arising when an individual chooses not to accept a job at the going wage rate

Question 8

Define involuntary unemployment

Answer 8

Situation assisting when an individual who would like to accept a job at the going wage rate is unable to find employment

Question 9

Why is there always frictional employment?

Answer 9

• Because information isn’t perfect and it takes time to find work
• Unemployment at full employment is almost all frictional in nature

Question 10

Why does structural unemployment occur?

Answer 10

Due to a mismatch of skills in the Labour market

Question 11

What 4 things can structural employment be caused by?

Answer 11

1) occupational immobility
2) geographical immobility
3) technological change and the development of labour saving technology
4) structural change in the economy

Question 12

What is occupational immobility?

Answer 12

The difficulties in learning new skills

Question 13

What is geographical immobility?

Answer 13

The difficulty in moving regions to get a job

Question 14

What is an example of structural change in the economy?

Answer 14

Eg the decline of the coal mines due to a lack of competitiveness meant that navy coal miners were unemployed

Question 15

What falls under the category of demand deficient unemployment?

Answer 15

Cyclical employment

Question 16

When does demand deficient unemployment occur?

Answer 16

When the economy is below full capacity, eg in a recession aggregate demand will fall leading to a decline in output and negative economic growth

Question 17

What will demand deficient unemployment result in?

Answer 17

A fall in output, firms will employ fewer workers because they are producing fewer goods. Also, some firms will go out of business leading to large scale redundancies

Question 18

When does demand deficient unemployment occur?

Answer 18

In recessions, unemployment tends to rise rapidly as firms lay off workers

Question 19

What are examples of seasonal employment?

Answer 19

(Demand for Labour varies in jobs that are linked to seasonal weather), tourism and farming both require extra workers at certain times of a year

Question 20

When does wage inflexibility occur?

Answer 20

This occurs when wages in a competitive labour market are pushed above the equilibrium

Question 21

What is an example of wage inflexibility occurring?

Answer 21

Wages could be pushed above the equilibrium level by minimum wages or trade unions. This is sometimes known as “disequilibrium” unemployment

Question 22

What is sometimes known as “disequilibrium” unemployment?

Answer 22

When wages could be pushed above the equilibrium level by minimum wages or trade unions

Question 23

Why could voluntary unemployment occur?

Answer 23

Workers may make a rational choice to remain unemployed in the short term, to achieve a job with higher pay in the long term

Question 24

Why can migration increase unemployment levels?

Answer 24

In 2022 the UK experienced net migration of 504,000, of migrants do not have skills for which there are shortages, this can increase unemployment levels