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Flashcards in Full employment Deck (5)
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1

What is full employment?

Full N indicates a non-zero, low rate of unemployment that is compatible with price stability, when all those who are w&a to work have gained employment.

2

What is underemployment?

Underemployment refers to a situation where labour is under-utilised
- workers who are w& a to work full-time, but are forced to work fewer hours than they would like
- skilled workers doing low-skill jobs

3

Limitations of unemployment statistics

- discouraged workers -> given up job search -> excl from official stats of unN altho given the chance, they would be willing to work. therefore unN statistics understates the actual unemployment

- underemployment -> actual unN is understated in the stats when workers, though employed, are working below their pdtive capacity

- unreported N -> those who fail to report legel N bc this might jeopardise their Y -> unN rate is overstated in stats; e.g. those who want to continue enjoying unN benefits, those in the shadow economy

4

5 Types of unN and their causes

- FUE: occurs when ppl leave their jobs (ir are made to leave) and are unemployed for a period of time while looking for a new job -> FUE will always exist at any one point of time bc of imperfect info in the L mkt, needing both employers and job-seekers to spend time searching for the best match available

- dd-deficient unN: unN that is due to the lack of AD.
----> one type of dd-deficient unN is cyclical unN, which rises and falls over the business cycle

- Structural unN: occurs when there is a mismatch btwn the skills or location of unN workers and the skills required by, or location of, available jobs -> occupational immobility (lack of relevant expertise to find jobs in expanding industries), geographical immobility (unw&a to move from region to region to take on jobs)

- Real-wage (Classical) unN: when real wages are forced above the mkt-clearing lvl, leading to an excess ss of L.

5

Costs (Cons) of unN

- worsens material SOL of hhs
- worsens non-material SOL
- high unN will cause the ecy to lose a large amt of o/p, this represents an opportunity cost to society, measured as a loss of ec welfare since smaller o/p means fewer needs and wants can be fulfilled and lower utility derived
- decline in I in the SR, leading to
- lower potential growth in the LR
- erosion of skills, undermining potential growth in the future
- worsening of budget position: loss of tax rev and incr in gov spending
- undermine cr and investor confidence
- rising inequality and other social costs