4.7 employment and unemployment Flashcards
(39 cards)
What is unemployment
Situation where people in the labour force are actively looking for jobs but are currently unemployed.
What is full employment
situation where the entire labour force is employed. All the people who are able and willing to work are employed – unemployment rate is 0%.
What is the labour force
Total number of people of working age in an economy who are willing to work
What is the labour force participation rate
Labour force as a proportion of the total working-age population
What is ‘dependent population’
People not in the labour force and thus depend on the labour force to supply them with goods and services to fulfill their needs and wants.
Some people in the dependent population
students in education
retired people
stay at home parents
prisoners or similar institutions
those choosing not to work.
What happens as the economy develops
(3 trends)
employment shifts from primary sector to manufacturing and then to the tertiary services
Employment shifts from the informal sector to the formal sector
Increase in proportion of female labour
Why the the proportion of female labour increase
Countries become more progressive
Poverty and rising living costs in developing countries force many women to work
Definition of informal and formal sectors
informal - unrecognised trades where the output is not included in GDP and incomes are not taxed
formal - recognised trades where the output is included in GDP and incomes are taxes
What are the 2 types of short lived unemployment
Frictional
Seasonal
What is frictional unemployment
individuals that voluntarily choose to leave their job in search of a new one or when new workers enter the job market.
‘in-between jobs’ unemployment.
What is seasonal unemployment
occurs as a result of the demand for a product being seasonal. When the season gets over, the employs are laid off.
For example - hotel workers (more during holidays less during rest of the year), agriculture etc
What is cyclical unemployment
occurs as a result of fall in aggregate demand due to an economic recession.
What effect can a fall in demand have on an economy
A downward multiplier effect on output, employment and incomes
What is a multiplier effect
A relatively small change in total expenditure can cause much larger changes in income, output and employment
What is structural unemployment
Occurs due to the long-term change in the structure of an economy. Workers have outdated skills that aren’t required anymore, and are occupationally immobile. This causes them to remain unemployed.
What is technological unemployment
When technology and machinery can complete tasks more efficiently and at a lower cost, companies switch to those capital-intensive methods of production. This leaves the labour that used to do those tasks unemployed.
What is sectoral unemployment
Unemployed caused as a sector/industry declines and leave its workers unemployed.
Eg: as an economy progress - goes from primary sector to tertiary sector.
What are some labour market barriers and failures.
Powerful trade unions forcing up wages
Unemployment benefits reducing the incentives to work
Increase in other costs of employment that reduce demand for labour
Lack of information that prevents people from getting jobs
Minimum wage legislation
Labour immobility
Why is Powerful trade unions forcing up wages a market failure
Trade unions may try to force the wages up without ensuring that labour productivity is going up as well. Employers may not be able to afford to employ all the employees at the new wage rate, hence unemployment would rise
How do trade unions drive up wage rates
Restrict the supply of labour to a industry/occupation
Threatening to take industrial action
How do unemployment benefits reduce the incentive to work
If the benefits are too generous, people may not want to work and just stay on those benefits.
Who and how does cutting unemployment benefits impact
Voluntarily unemployed - People who chose not to work - may be forced to work.
Involuntarily unemployed - people who are unemployed out of no fault of their own (eg structural unemployment) - unfair to them.
How do other employment costs reduce the demand for labour
what is a possible solution
Firms that employ labour have to pay other costs barring salaries and wages as well, such as contribution to fund publicly provided unemployment and welfare benefits and training costs.
if these costs rise, demand for labour would fall as firms don’t want to pay these additional costs
Solution - cutting payroll tax increases the demand for labour.
