Unemployment/ Employment Flashcards
(29 cards)
Classical unemployment
Wages in a competitive labour market are pushed above equilibrium
What are the two main measures of unemployment?
1) The Claiment Count (number receiving benefits)
2) LFS-Labour Force Survey
Demand-deficient unemployment (cyclical unemployment)
- Occurs when the economy is below full capacity
- Recessions tend to see firms lay off workers
Frictional Unemployment
unemployment caused by the time people take to move between jobs
Full employment
- The level of employment rates where there is no cyclical (demand-deficient) unemployment
- In the UK 4% unemployment is considered full employment
- The condition in which virtually all who are able and willing to work are employed.
Unemployment rate
The % of the Labour Force not currently in paid employment
Disadvantages of LFS and Claiment Count
- LFS survey could be subject to sampling errors
- Claiment count- government always changing the criteria
- Many genuine unemployed do not claim due to the “stigma effect”
Structural unemployment
Occurs due to a mismatch of skills in the labour market
Advantages of LFS and Claiment count
- LFS usually gives a fuller picture of unemployment
- numbers are usually bigger.
Underemployment
Is the underuse of a worker because a job does not use the workers skills is part-time or leaves the workers idle.
what does unemployment mean?
Is a person not currently in paid employment or self-employment but currently available for work during the reference period.
what does employment mean?
Is a person who is willing to work is currently in paid employment
UK below 4% classed as full employment
Non-accelerating inflation rate of unemployment
- Is a theoretical level of unemployment below which inflation would be expected to rise
- The NAIRU is the lowest unemployment rate that can be sustained without causing wages growth and inflation to rise.
Causes of Unemployment?
- Occupational immobilities
- Geographical immobilites
- Technological change
- Structural change in the economy
Consequences of unemployment
1) Loss of income, less consumption, less C, less GDP, shifts AD left
2) Waste of Resources - if individuals become or remain unemployed, who are educated and skilful these resources have been wasted. Operating within PPF
3) Philips Curve suggests inflation is likely to fall when unemployment is high
Effects of full employment
- Full-employment may cause labour shortages and wage inflation.This can lead to ordinary inflation
- Full-employment has the positive effect of maximising potential output in an economy, achieving productive efficiency
- Reduce relative poverty, increase income, increase living standards
- Could lead to an increase in labour productivity as firms may increase the training they provide, increase LRAS
What does the Philip Curve show?
The inverse relationship between unemployment and inflation in an economy
According to Keynesian economics what is said about the inflation and unemployment?
There was a trade-off between inflation and unemployment. To reduce unemployment you would create inflation and vice versa
What’s does NRU stand for?
Natural Rate of unemployment
In the long-term what does the LRPC curve look like?
Just a vertical line that occurs at the NRU
Money illusion?
States that individuals usually tend to view their income and wealth in nominal terms, as opposed to real terms
(Diagonal move)
Adaptive expectations (inflationary expectations)
State that if inflation increased in the past year, people will expect a higher rate of inflation in the next year (shift in SRPC)
What determines the NRU?
Not fixed forever, made up of frictional and structural unemployment so anything that changes will change the NRU line
What could shift the NRU (NAIRU) to the left?
Supply side measures (such as Labour market or benefit reforms) May lower the long term natural rate of unemployment
This could mean that a stable inflation rate is associated with lower unemployment in the long term
