Unemployment Flashcards
(31 cards)
define unemployment
state of being willing, able and actively seeking work but not currently employed
define cyclical unemployment
a type of unemployment that occurs when the number of unemployed workers changes due to the business cycle or economic fluctuations
causes of cyclical unemployment
economic shock like COVID or financial crash
= labour is a derived demand, so when AD decreases, so does demand for labour
= increase unemployment
= due to COVID19 unemployment increased by 400,000 people in the UK in 2020
define real wage unemployment
a type of unemployment that occurs when wages are set above the equilibrium level, causing an excess supply of labour
describe process of RW unemployment
if gov or TUs intervene to increase min wages
= decreases firm’s demand for labour however people are still seeking work at original wage demand
= creates excess supply of labour
= creates disequilibrium unemployment
define disequilibrium unemployment
occurs when the supply of labour is greater than the demand for labour, resulting in unemployment
= can happen when the wage rate is higher than the equilibrium wage rate, causing workers to be unwilling to accept a lower wage
reasons for long term change in industry
- tech advancement creates tech that automates ppl’s jobs
- loss of comparative adv= industry can produce goods at lower costs abroad
= cause occupational and geographical immobility of labour - existing inductors modernise= need new skills of workers
define seasonal unemployment
occurs when people are unemployed at particular times of the year when demand for labour is lower than usual
define frictional unemployment
a type of short-term, voluntary unemployment that occurs when people are between jobs or entering the workforce for the first time
effects of frictional unemployment
- can find job that aligns with skills and preferences
= higher job satisfaction and productivity in LR - lead to upward pressure on wages in competitive labour markets
- low economic output in short term due to inactive workforce
define natural rate of unemployment
the unemployment rate that persists in a well-functioning, healthy economy that is considered to be at “full employment” while maintaining a steady inflation rate
free market determinants of NRU
- generous benefits system
= encourages structural unemployment as ppl don’t engage in training etc due to safety net of benefits
= increases NRU - excessive labour market regulation
= strict hiring and firing rules mean firms not willing to take risk of hiring low skilled workers
= increase structural and occupational unemployment
interventionist determinants of NRU
- lack of transport and housing
= increase geographical immobility of labour - lack of in-work training
= under consumption and production of training
= have less transferable skills
define voluntary unemployment
situation where unemployed choose not to accept a job at a given wage rate
reasons for voluntary unemployment
- generous benefits for unemployed
- high marginal tax rates
= less income taken home - some jobs are seen as too tedious or demeaning
define involuntary unemployment
workers would like to work at current wage rate but are prevented from working
measures of unemployment
- labour force survey
- claimant account
describe LFS
- a sample survey of people in private households conducted by the Office for National Statistics (ONS)
= 40,000 households a year - works out unemployed, employed and economically inactive
describe claimant count
a measure of unemployment that counts the number of people who are receiving benefits primarily for being unemployed
disadvantage of claimant count
- hard to compare to other countries as they may not have benefits or have different conditions to claim benefits
- not everyone will or can claim benefits e.g. husband makes enough for the household
= tends to be lower than LFS and less accurate - could be subject to fraud
disadvantage of LFS
- risk of sampling errors and small sample size compared to size of population
= marginal error was +/- 3%= wide margin of error - very expensive= leads to small sample size
- ‘hidden unemployment’ of discouraged workers cld be left out= ppl may have given up trying to get work= drop out of labour force= not seeking work anymore= not identified as unemployment but basically are
- doesn’t talk about disparities in unemployment across economy
= e.g. youth, gender, race etc unemployment= doesn’t tell us about underlying structural issues causing unemployment
costs of unemployment
- economy operates within productive potential
= doesn’t get max production of goods= less access to goods
= lower SOL to constraint growth - deterioration of gov finances= lower income tax and VAT revenue= less potential investment
- high social costs= riots and protests= high cost for police
= more spending on healthcare for mental health
= higher budget deficit and national debt= higher interest rate costs - hysteresis= unemployment becomes long term nature
= longer unemployed= lose their skills= new entrances to labour force out-compete the unemployed
= become unemployable= less spending power= low growth
= drop out of labour force= decrease LRAS
benefits of unemployment
- greater pool of workers for firms to choose from
= choose most productive worker to keep low COP and increase profit margins= good for worker’s morale - high unemployment= low wage bargaining power= low COP
= keep constant prices= low inflation - improves CA position= less spending on imports
EVALUATION of unemployment
- depends on duration of unemployment
= LT= high risk of hysterisis= dangerous for economy - depends on type of unemployment
= cyclical not bad= recessions don’t last forever
= structural is worse= occupational immobility
