UNEMPLOYMENT 2.1.3 PMT NOTES Flashcards

Question

CYCLICAL UNEMPLOYMENT

Answer 1

unemployment due to general lack of demand of goods + services within country - also known as Keynesian 'demand deficient' unemployment - When there is recession or severe slowdown in economic growth, we see rising unemployment due to plant closures, business failures + increase in worker layoffs + redundancies - This is due to decrease in demand causing businesses to cut employment in order to control costs + restore some of their profitability

Answer 2

unemployment considered to be result of real wages being above their market clearing level leading to excess supply of labour. - Some workers might be prepared to work for less than minimum wage + companies may be prepared to take on more workers if could pay them less than minimum wage, but this is illegal + so unemployed workers cannot get job - Some economists believe that minimum wage risks creating unemployment in industries where international competition from low-labour cost producers is severe. As of yet, there is relatively little evidence that minimum wage has created rising unemployment on scale that was feared. - can also be caused by unemployed workers refusing to take low paid jobs as they can receive more in welfare benefits

Answer 3

increase in net inward migration tends to lead to increased jobs. Since 1990s, UK has seen large increase in immigration from mainly Eastern European countries. Most of these people come to UK to work, are of working age + often take lower skilled jobs; are less likely to claim benefits than existing population. Due to circular flow of income, immigrants' spending creates jobs + total employment increases without increase in unemployment. - depends how much money immigrant workers send back home. But, it also leads to lower wages, particularly for lower-paid, low skilled jobs. UK firms able to recruit foreign workers meaning that supply of labour is increased + so price equilibrium of labour is reduced There is more competition for jobs + UK workers who have low motivation to work + are low skilled are most affected as they are competing in job market with hard working, more skilled workers prepared to take same jobs as them. impact of this is only small (middle + higher income wages rarely affected)

Answer 4

Economies progress over time, + as a result, higher skills are needed to work in them. In UK 50 years ago, many jobs were available for those who couldn't read/write but now there are few For UK to maintain its employment levels, needs to increase skills of its workforce over time. Structural unemployment is caused by lack of/wrong skills. E.g, engineering companies struggles to recruit skilled workers even though there are unemployed workers in local area. If firms will not train staff, government has to step in to correct market failure but this is costly. As result, people become long-term unemployed as their skills don't fit jobs on offer. Migrant workers may fill these shortages if their skills fit.

Answer 5

Those who are made unemployed normally have loss of income which usually results in decline in their living standards. They often suffer from stigma of being unemployed + feel degraded by process of signing on to receive benefits to support their family. can lead to stress, marital breakdown, suicide, physical illness etc. - long-term unemployed (those unemployed for more than 12 months) often find it more difficult to get another job as they lose skills - Those who are in jobs will suffer from lower job security + will fear being made redundant. They could also see fall in wages as firm can easily find someone to replace them if they complain about pay.

Answer 6

- There will tend to be decrease in demand for their goods (but depends on YED) + so this could lead to fall in profit. - Long term unemployment can lead to loss of skills + reduce employability of workers, so firms have smaller pool of skilled people to employ. They can offer low wages as people will take job anyway as they know there is lack of jobs so have few options.

Answer 7

Consumers in areas of high unemplovment lose out as local shopping centres tend to be run down + don't offer range of shops available to those in areas of low unemployment. They suffer from less choice. quality o goods may also decrease. unemployed consumers lose out as have less available to spend But, firms may lower prices + put on sales to increase demand for their product.

Answer 8

reduced income results in fall in tax revenues + higher spending on welfare payments for families with people out of work, incurring opportunity cost as money could be better spent elsewhere. - results in increase in budget deficit. will be likely that government will have to raise taxation /scale back plans for public spending on public + merit goods, such as NHS/education. may need to increase borrowing.

Answer 9

Rising unemployment linked to social deprivation. - relationship with crime + social dislocation (increased divorce rates, worsening health + lower life expectancy). - Areas of high unemployment often see fall in demand for local goods + services, leading to fall in income for those working in services + sometimes further loss of jobs. - results in loss of potential national output + represents inefficient use of scarce resources. If people chose to leave labour market permanently, then this will have negative effect on LRAS + therefore damage economy's growth potential so country unable to achieve their desired PPF - Taxpayers paying money to unemployed is not loss for economy as it is transfer payment but economy affected as there is fall in national output + social costs of unemployed e.g. violence + crime.

UNEMPLOYMENT 2.1.3 PMT NOTES Flashcards

(33 cards)