2.1.3 - employment and unemployment

Question 1

Who are the unemployed?

Answer 1

those of working age who are actively seeking employment but don’t have a job.

Question 2

what does economically active mean?

Answer 2

individuals of working age (16-67) who are either employed, self-employed or unemployed.

Question 3

what does economically inactive mean?

Answer 3

those of working age who are neither employed nor unemployed, therefore are non-labour market participants eg. students, early retired, ill, prisoners, disabled, carers

Question 4

what is the unemployment rate?

Answer 4

the number of unemployed people as a percentage of the labour force/economically active

Question 5

what is the Claimant Count?

Answer 5

a measure of unemployment - the total number of people claiming Job Seekers Allowance (JSA). published every month

Question 6

why is the claimant count inaccurate?

Answer 6

it understates unemployment because: individual savings or total household income may be too high for people to claim, ineligible due to insufficient NICs, not an EU citizen, left job voluntarily or dismissed for misconduct, asymmetric information, too embarrassed to claim.

Question 7

What is the Labour Force Survey (LFS)?

Answer 7

the government’s preferred measure of unemployment, allows for international comparison of data. Surveys 60,000 households and over 100,000 people.

Question 8

how does the LFS define a person as unemployed?

Answer 8

If they are out of work, actively seeking work, actively looking for work in the past 4 weeks, able to start work within 2 weeks.

Question 9

How does the LFS work?

Answer 9

100,000 people in 60,000 households chosen randomly chosen by postcode are reported on each quarter. results are weighted to give an estimate reflecting the entire population

Question 10

what is underemployment?

Answer 10

occurs when part-time workers are unable to work more hours or seek but are unable to acquire full-time employment

Question 11

what are effects of increased employment?

Answer 11

-increased production + consumption = economic growth - increased GDP
-increased tax revenues for the government eg. VAT, income tax, NICs
-better quality of life
-increased productivity - increased output
-increased demand = more investment from firms, higher animal spirits
-improved fiscal position = higher tax revenues, less government spending
-positive multiplier effect
-upward pressure on wages
-demand-pull and cost-push inflation

Question 12

what are the impacts of increased unemployment?

Answer 12

-reduced income = reduced consumption + tax revenues
-increase in leisure time for unemployed
-poor mental health/increase in stress levels
-reduces human capital of workers as they lose skills - LRAS left shift
-increased crime and violence, vandalism
-high unemployment leads to areas becoming run down, environments destroyed
-increased benefits paid out by government - fiscal deficit
-government tax revenue decreased = taxpayers pay increased amounts of tax
-loss of output due to unemployed workers
-loss of demand in the economy, less spending from consumers
-lower productivity
-overconsumption of demerit goods

Question 13

what are the impacts of increased inactivity in the economy?

Answer 13

-lower productivity in the economy = operating inside PPF
-restricts economic growth
-increased government spending on benefits
-lower tax revenues for the government
-lower output from firms = shortages of some goods
-burden on the state = not contributing to tax revenues, benefit payments
-raised taxes on the working population, increased retirement age

Question 14

what is structural unemployment?

Answer 14

occurs when the structure of the economy changes to declining demand or technological progress.

Question 15

how does declining demand cause structural unemployment?

Answer 15

changes in consumer tastes and preferences or competition from related industries, poor productivity, cheaper imports

Question 16

how does technological progress cause structural unemployment?

Answer 16

CAPITAL-LABOUR SUBSTITUTION, caused by labour immobility

Question 17

what is occupational immobility?

Answer 17

a lack of transferable skills

Question 18

what is geographical immobility?

Answer 18

workers are unable to relocate

Question 19

what are solutions to structural unemployment?

Answer 19

market-orientated approach = encourages labour market participation (supply-side policy).
interventionist approach = regional policy to attract industry to a particular area via tax breaks/subsidies, improving human capital to eliminate skills shortages and develop transferable skills, subsidised housing to enhance geographical mobility

Question 20

what is frictional/search unemployment?

Answer 20

associated with job turnover, only persists in the short-run as individuals move between jobs due to redundancy or seek employment after education.

Question 21

what are the solutions to frictional unemployment?

Answer 21

reduced JSA to incentivise people to work, direct tax cuts to eliminate the unemployment trap, improve information

Question 22

what is seasonal unemployment?

Answer 22

occurs when demand for labour fluctuates with seasons

Question 23

what is demand deficient/cyclical unemployment?

Answer 23

associated with economic recession. labour is a derived demand, as AD falls firms reduce number of workers to lower costs, avoid surpluses and protect profits. Exists in long-run if there is a negative output gap

Question 24

what are the solutions to cyclical unemployment?

Answer 24

-increase g (expansionary fiscal policy), causes economic expansion via the multiplier shifting AD right. investment in infrastructure and human capital increases productivity shifting AS right.
-reduced taxes (expansionary fiscal policy)
-adjust income take to increase disposable income and consumption.
-lower interest rates (inflationary monetary policy)
-depreciation to boost exports and domestic production

Question 25

what are the positive impacts of migration for an economy?

Answer 25

-increased human capital - quality and quantity = shifts LRAS right -increased labour force size -builds trade links with developing economies -increased tax revenues due to employed immigrants = fiscal surplus -increased productivity and output -can address demographic issues associated with an ageing population -enhances the productive capacity of an economy -eradicates labour shortages -lower cost of production = SRAS shifted right!!!!!!!! -higher GDP = economic growth -increased profits -increased consumption = higher revenue -higher animal spirits = investment -job creation, labour is a derived demand -positive multiplier effect

Question 26

what are the negative impacts of migration for an economy?

Answer 26

-can decrease wages due to higher labour supply -governments spend money to provide services -excess demand can cause shortages = higher prices and inflation -increased cost of housing -strain on public services -lack of relevant skills eg. language barrier -social unrest -leakages = remittances -additional burden on the state (benefits and housing) = fiscal deficit, higher borrowing

Question 27

What factors are effected by the level of net migration?

Answer 27

-determines the size of labour force and rate of unemployment -causes shortages/surpluses in domestic labour market -influences GDP - rate of economic growth -effects productivity -influences labour market flexibility -level of tax reciepts

Question 28

what are the benefits of a highly skilled workforce?

Answer 28

-enables those at risk of labour market exclusion to acquire paid employment -allows workers to achieve progression in the labour market + higher wages -removes employability barriers -facilitates job retention

Question 29

what are the impacts due to a lack of skills in the workforce?

Answer 29

-inflexible labour markets -increases the unemployment rate -labour market shortages and upward pressure on wages

Question 30

what are the effects of unemployment on consumers?

Answer 30

-shortages of some products due to low productivity and output = higher prices and a fall in consumer surplus -reduced utility due to lower output and efficiency = unable to satisfy needs and wants -reduced purchasing power due to lower disposable income levels = fall in consumption - less utility derived

Question 31

what are the effects of unemployment on firms?

Answer 31

-lower productivity and output -increased cost of production = reduced profits -lower demand = reduced investment, lower animal spirits -reduced human capital leads to shortages of labour -higher wages due to labour shortages to incentivise employment

Question 32

what are the effects of unemployment on workers?

Answer 32

-decreased consumption = lower utility and living standards -workers lose skills, human capital is reduced

Question 33

what are the effects of unemployment on government?

Answer 33

-fiscal deficit = increased unemployment benefits, lower tax revenues (VAT, income tax) -lower economic growth (reduced consumption) -more strain on services provided by government (healthcare and education) -inflationary pressures

Question 34

what are the effects of unemployment on society?

Answer 34

-higher crime and violence rates -high unemployment leads to areas becoming run-down, environments are destroyed

Question 35

how does real wage inflexibility cause unemployment?

Answer 35

The result of real wages being above their market clearing level, leading to excess supply of labour. Some workers may be willing to work for less than minimum wage and firms may be willing to take on workers for less than minimum wage, however this is illegal so unemployed workers are unable to find a job. Some people argue that minimum wage risks creating unemployment in some industries where international competition from low-labour cost producers is severe. Real wage inflexibility unemployment may also be caused by unemployed workers refusing to take low paid jobs because they can receive more in welfare benefits.