4.2.3.2 Unemployment

Question 1

Unemployment Definition

Answer 1

People who are aged 16-64, who are willing, able and available to work within the next two weeks, but are unable to get a job.

Question 2

Economically Inactive Definition

Answer 2

• Aged 16-64 who are not actively seeking work.
• e.g. Full-time students, long term sickness, early retirement.

Question 3

Demand Side Types of Unemployment

Answer 3

• Seasonal
• Cyclical

Question 4

Supply Side Type of Unemployment

Answer 4

• Structural
• Frictional
• Real Wage

Question 5

Structural Unemployment

Answer 5

Long term economic shifts lead to long term unemployment. This occurs as a result of occupational and geographical mobility.

Mining communities in Wales, Rhondda Valley. Miners strikes in 1980 after mined began closing. This led to occupational immobility in a skilled industry.

Question 6

Frictional Unemployment

Answer 6

Workers are moving between jobs. Occurs in the short term as workers have imperfect information about every job opportunity. This is always likely to exist.

Question 7

Cyclical Unemployment

Answer 7

This is linked to the economic cycle as workers are in derived demand. Drops in AD lead to increased unemployment. occurs due to a negative output gap.

Question 8

Seasonal Unemployment

Answer 8

This occurs when workers are unemployed at different times of the year.

Question 9

Real Wage Unemployment

Answer 9

Real Wage rates are above the equilibrium, causing and excess supply of labour. In a free labour market real wage rates would fall in these circumstances and the market would return to equilibrium.

However, distortions to the labour market such as the national minimum wage or trade unions can maintain real wage rates above their equilibrium.