Types of unemployment Flashcards
What is cyclical unemployment?
This is unemployment due to a lack of AD, which occurs in a recession.
Why does a decrease in AD lead to unemployment?
Cyclical
Labour is a derived demand. So little demand means little labour needed.
Profit margins. When AD is low then so is revenue. Firms will unemploy in order to protect profit margins.
What is real wage unemployment?
This is when wages are forced above equilibrium in a labour market, creating excess supply of labour.
Why may wages be forced above equilibrium?
Real wage
Minimum wages set by the government.
Trade unions fighting for higher wages and benefits.
What does the natural rate of unemployment consist of?
Structural
Frictional
Seasonal
What is structural unemployment and the types?
It is when theres an immobility of labour due to a long term change in the structure of the industry.
Occupational immobility where theres a skills mismatch. Workers dont have the skills required.
or
Geographical immobility where workers are not willing or unable to physically move for work.
What changes may lead to structural unemployment?
Technology advancement. A lot of jobs becoming automated.
Loss of comparative advantage. Firms lose the cost advantage compared to other firms abroad who dont. This leads to a decline in the industry who loses the advantage and jobs are lost.
Modernising and new industry. Workers may need newer skills. Primary sectors may change
What is frictional unemployment?
This is when workers are between jobs.
What is seasonal unemployment?
When workers are employed in specific periods of the year.
Explain the NRU on a graph.
Theres an actual supply curve of people who actually take jobs at different wage rates It is slanted and tends towards the original supply curve.
Due to the new equilibrum, the difference between those who are willing to work and those who actually get the job is called the NRU.
(difference between equilibrium points)
What are the determinants of NRU according to free market economists? and what do they argue?
They argue that there is too much gov intervention, which has led to NRU.
Determinants
1) Generous benefits. This will be a safety net for people especially for those structurally and frictionally unemployed.
2) Excessive labour market regulations. Firms are less willing to take risks with hiring lower skilled workers as a result.
What are the determinants of NRU according to interventionist economists? and what do they argue?
They argue that there is a lack of gov intervention, which has led to NRU.
Determinants
1) Lack of transport/housing infrastructure. This makes structural and frictional unemployment longer.
2) Lack of in work training. Workers dont develop new skills so it may lead to occupational immobility in the future.
