Tutorial sheet 5 Flashcards
(6 cards)
Give a definition for the Labour Force. What is meant by “the rate of unemployment”? Consider a
small island developing state (SIDS) of the Caribbean. What could account for the rate of
unemployment being over-stated or under-stated?
Over-stated:
Informal workers (like market vendors, handymen, fisherfolk) may be working but not officially recorded, so they’re mistakenly counted as unemployed.
People doing side hustles or seasonal work (especially in tourism) might not be counted properly.
🔻 Under-stated:
Discouraged workers who’ve stopped looking for work out of frustration aren’t counted as unemployed even though they don’t have a job.
Underemployment isn’t reflected — people may have a job but work way below their skill level or work only a few hours a week.
- Explain the differences between the three types of unemployment and outline potential policy
solutions to each.
Frictional Unemployment
This is the short-term unemployment that happens when people are between jobs or just entering the workforce (like school leavers or people switching careers). Policy Solution: Better job-matching services (like job centers, online platforms), Career counseling and training programs
Structural Unemployment
This happens when there’s a mismatch between workers’ skills and what employers need. For example, a factory worker losing their job because the industry is shifting to automation or renewable energy. Policy Solution: Education reform and reskilling, Regional development programs to support affected areas
Cyclical Unemployment
This is unemployment caused by a downturn in the economy (a recession). It’s due to reduced demand for goods and services, so firms cut jobs. Policy Solution: Stimulus spending (govt creates jobs), Lower interest rates to encourage investment and spending
d) * What is meant by ‘sticky wages’? What is its impact in the determination of unemployment over
the business cycle?
Sticky wages mean wages are don’t adjust quickly during recessions, causing unemployment to rise by people being layed off instead of pay being reduced. It’s a key reason why the labor market doesn’t adjust quickly over the business cycle.
- What is the meaning and significance of the acronym NAIRU? What are the main determinants
of the NAIRU? Can government policy influence the NAIRU?
NAIRU (Non-Accelerating inflation Rate of Unemployment) means the lowest unemployment rate possible without causing inflation to rise. It’s important for setting policies that balance jobs and price stability. It’s influenced by things like labor market flexibility, education levels, and wage-setting systems. And yep—government policies like training programs and job incentives can lower the NAIRU over time and help reduce unemployment without triggering inflation.
Why is unemployment considered a major issue and challenge for the SIDS of the Caribbean subregion
Unemployment is a major challenge for Small Island Developing States (SIDS) in the Caribbean because their economies are often narrow and vulnerable—heavily dependent on sectors like tourism, agriculture, or offshore finance. When global demand drops (like during COVID), or natural disasters hit (hello, hurricane season), jobs vanish fast. There’s also a youth unemployment crisis, limited diversification, and not enough opportunities for skilled graduates, which leads to brain drain—young people leaving for better jobs abroad. Add in weak infrastructure and import dependence, and yeah… unemployment becomes a long-term headache.
What is full-employment unemployment?
is the lowest level of unemployment an economy can have without causing inflation to rise. It includes frictional and structural unemployment, but not cyclical. It means everyone who wants a job and is able to work can find one—eventually.
