(SELF) UNIT 3 AOS 2 - part 3 - Full employment

Question 1

UNN Formula

Answer 1

[Unemployed/Labour force] * 100

Question 2

Participation rate formula

Answer 2

[Labour force/Working age] * 100

Question 3

Underutilization rate

Answer 3

[unem+underem]/labour force
x100

Question 4

Goal of full employment

Answer 4

The goal of full employment refers to the:Maximum sustainable rate of reduction of unemployment by lifting the pace at which economic growth can be maintained without running into inflationary and external pressures. Economists use the NAIRU: 4.25% as the acceptable rate of full employment. The zone of unemployment is between 4-4.5%.

Question 5

Employed

Answer 5

• over 15 years
• working (1 hour in the survey week)

Question 6

Unemployed

Answer 6

• over 15 (inclusive)
• actively seeking employment

accept job week prior to survey

Question 7

Cyclical unemployment

and diff for this

Answer 7

• fluctuations in aggregate demand (and economic activity)
• Job loss caused by downswings in the business cycle
• use full domino analysis (AD)

diff: the goal of full employment (NAIRU) uas no cyclical unemployment

Question 8

Structural unemployment

and how to reduce

Answer 8

• Caused by changes to the supply side factors that change the nature of work and cause a mis-match in skills available and those sought by employers (i.e. Automation, off-shoring, outsourcing)

How to reduce?
* subsidies
* employed long term unemployed

Question 9

Seasonal unemployment

Answer 9

Caused by labour demand and movement between seasonal times of the year - summer (fruit picking), Christmas casuals etc.

Question 10

Frictional unemployment

Answer 10

• Caused by movement between jobs and those transitioning into the labour force

Question 11

Underemployment
(disguised employed)

Answer 11

• employed but prefer to be working more hours

Question 12

Hidden unemployment
(discouraged) - not included in UNN stat

Answer 12

Caused by discouraged job seekers who are not actively looking - due to poor market conditions, lack of skills etc.

also caused by downturns in the business cycle and other factors

Question 13

Long term unemployment

mostly what?

Answer 13

• unemployed for 52 weeks
• disproportionally made up of people over 50 years of age

mostly:
* structural unemployment
○ older
○ male
○ lack formal education

Question 14

relationship between par% and UNN%

Answer 14

↑par%
[short term]
= ↑UNN (as they are classified as “unemployed” until they find work)

[long term]
= ↓ UNN
= growing labour force (supply labour increase)
= downwards pressure on wages and/or ↑ productivity
(AS analysis )
= ↑demand for labour
= create additional employment and reducing UNN% Overall

↓UNN%
= ↑PAR% (some job seekers will be encouraged about job prospects(opportunies) and enter the labour force)

but when unn↑
= people see ↓ people employed
= ↓ confidence to find a job
= ↓stop actively looking for job
= hidden unemployed
= no longer part of workforce
↓ dec par%

Question 15

unemployment rate low (under NARIU - overachieving)
effect on inflation

forAS and AD

Answer 15

[Demand inflation]
(move from transfer to factor income)
* ↑disposable incomes
* increase propensity to consume
* higher C+I
* ↑ AD
* D>S
demand inflationary pressures

[cost inflation]
* ↓UNN
* low supply of labour
= tighter labour market (+skill shortages)
= producers pay more to attract and retain workers
* ↑ wage costs
* ↑ cost of production
* ↓profitability
* ↓willingness to produce g/s
* ↓AS
* ↓EA
* ↑ cost inflationary pressures (maintain profit margin so pass on higher costs to consumers)
(also: wage/price spiral)

Question 16

unemployment rate high (over NARIU)
effects

Answer 16

[REAL GDP]
↑ UNN
* ↑ labour not utilized
* reduce productive capacity

↑UNN (supply)
* Loss of skills (structural UNN)
* supply side shortages

Then:
= ↓ production of G/S
= ↓ SSEG
= ↓incomes

[tax revenue]
* ↑ UNN
* (move from factor to transfer income)
* ↓income tax receipts ~50%(+ company tax receipts)
* ↓ govt spend on essential g/s
* less expenditure and collective goods health + education
* ↓NMLS
(also if spending remains > revenues = govt budget deficit will explode)