Unemployment

Question 1

What are the two categories of unemployment?

Answer 1

The long-run problem and the short-run problem:

• the natural rate of unemployment
• the cyclical rate of unemployment

Question 2

What is the natural rate of unemployment?

Answer 2

It is the unemployment that does not go away on its own even in the long run

Question 3

What is cyclical unemployment?

Answer 3

This refers to the year-to-year fluctuations in unemployment around its natural rate

Question 4

Which type of unemployment is the amount of unemployment that the economy normally experiences?

Answer 4

Natural rate

Question 5

Which type of unemployment is associated with short-term ups and downs of the business cycle?

Answer 5

Cyclical unemployment

Question 6

What are two ways in which unemployment can be measured?

Answer 6

A monthly survey of households

Claimant count

Question 7

What are the 3 categories related to employment that an adult can be placed in?

Answer 7

Employed
Unemployed
Not in the labour force

Question 8

Define labour force

Answer 8

The total number of workers, including the employed and the unemployed

Question 9

How is the unemployment rate calculated?

Answer 9

It is the percentage of the labour force that is unemployed

Question 10

What is the formula for the unemployment rate?

Answer 10

(number unemployed/ labour force) x 100

Question 11

What is the labour force participation rate?

Answer 11

The percentage of the adult population that is in the labour force

Question 12

How can you calculate the labour force participation rate?

Answer 12

(labour force / adult population) x 100

Question 13

Why is it difficult to distinguish between a person who is unemployed and a person who is not in the labour force?

Answer 13

Some people are discouraged workers whilst others may claim to be unemployed in order to receive financial assistance even though they aren’t looking for work

Question 14

What is meant by a discouraged worker?

Answer 14

A person who would like to work but has given up looking for jobs after unsuccessful search

Question 15

Do discouraged workers show up in employment statistics?

Answer 15

No

Question 16

What is most of the economy’s unemployment problem attributable to?

Answer 16

Relatively few workers who are jobless for long periods of time

Question 17

What would happen in an ideal labour market?

Answer 17

wages would adjust to balance the supply and demand for labour, ensuring all workers would be fully employed

Question 18

What does frictional unemployment refer to?

Answer 18

The unemployment that results from the time that it takes to match workers with jobs. In other words, it takes time for workers to search for the jobs that best suit their tastes and skills

Question 19

What is structural unemployment?

Answer 19

This is the unemployment that results because the number of jobs available in some labour markets is insufficient to provide a job for everyone that wants one

Question 20

What is job search unemployment?

Answer 20

This is the process by which workers find appropriate jobs given their tastes and skills and results from the fact that it takes time for qualified individuals to be matched with appropriate jobs

Question 21

Why is job search unemployment different to other types of unemployment?

Answer 21

It is not caused by a wage rate higher than equilibrium but by time spent searching for the “right” job

Question 22

Why is some frictional unemployment inevitable?

Answer 22

Because the economy is always changing-
changes in the composition of demand among industries or regions are called sectoral shifts
It can take time for workers to search for and find jobs in new sectors

Question 23

Give 3 policies that the government can use to affect the time it takes for unemployed workers to find new jobs

Answer 23

Government-run employment agencies
Public training programs
Unemployment insurance

Question 24

What do government- run employment agencies do?

Answer 24

They give out information about job vacancies in order to match workers and jobs more quickly

Question 25

What do public training programs aim to do?

Answer 25

To ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty

Question 26

What is unemployment insurance?

Answer 26

This is a government programme that partially protects workers' incomes when they become unemployed

Question 27

What two things does unemployment insurance offer?

Answer 27

Partial protection against job losses | Partial payment of former wages for a limited time to those who were laid off

Question 28

What does unemployment insurance increase?

Answer 28

The amount of search unemployment

Question 29

What might unemployment improve?

Answer 29

The chances of workers being matched with the right jobs

Question 30

When does structural unemployment occur?

Answer 30

When the quantity of labour supplied exceeds the quantity demanded

Question 31

Which type of unemployment is thought to explain long-term unemployment?

Answer 31

Structural unemployment

Question 32

What are 3 reasons why there is structural unemployment?

Answer 32

Minimum wage laws Unions Efficiency wages

Question 33

What happens when minimum wage is set above a level that balances supply and demand?

Answer 33

It creates unemployment

Question 34

Why does having a minimum wage that is set above the equilibrium wage cause unemployment?

Answer 34

There is a labour surplus

Question 35

What is a union?

Answer 35

This is a worker association that bargains with employers over wages and working conditions

Question 36

What is a union a type of?

Answer 36

It is a type of cartel that tries to exert its market power

Question 37

Define collective bargaining?

Answer 37

This is a process by which unions and firms agree on the terms of employment

Question 38

What might happen if the union and firm cannot reach a collective bargaining agreement?

Answer 38

A strike might be organised

Question 39

What does a strike refer to?

Answer 39

It refers to when a union organises a withdrawal of labour from the firm

Question 40

What are the effects of strikes on insiders?

Answer 40

They reap the benefits of collective bargaining

Question 41

What are the effects of strikes on outsiders?

Answer 41

They bear some of the costs

Question 42

Who are the insiders and outsiders?

Answer 42

Insiders are the workers inside the union, outsiders are not in the union

Question 43

Why do unions often achieve above-equilibrium wages for their members?

Answer 43

Because they act as a cartel with the ability to strike or otherwise impose high costs on employers

Question 44

What are efficiency wages?

Answer 44

These are above-equilibrium wages paid by firms in order to increase worker productivity. The firm chooses to do this.

Question 45

What is the theory about efficiency wages?

Answer 45

Firms operate more efficiently if wages are above the equilibrium level

Question 46

What are 4 reasons why a firm may prefer higher than equilibrium wages?

Answer 46

Worker health Worker turnover Worker effort Worker quality

Question 47

Explain worker health

Answer 47

Better paid workers eat a better diet and thus are more productive

Question 48

Explain worker turnover

Answer 48

A higher paid worker is less likely to look for another job

Question 49

Explain worker effort

Answer 49

Higher wages motivate workers to put forwards their best effort

Question 50

Explain worker quality

Answer 50

Higher wages attract a better pool of workers to apply for jobs