UNEMPLOYMENT 8.2 booklet 2.1.3

• What is structural unemployment caused by?

  Changes in the structure of the economy
• What usually causes structural unemployment?


  Increased competition from foreign industries, causing certain industries to decline (as a result of occupational and geographical immobility of labour)

  
• Name one industry that has declined in the UK due to structural unemployment.

  Shipbuilding
• How does occupational and geographical immobility affect structural unemployment?

  It makes structural unemployment worse
• What type of unemployment describes the period of time when workers are switching between jobs?

  Frictional unemployment
• What is an example of frictional unemployment?

  A bus driver taking a break before taxi driving
• What causes seasonal unemployment?


  Unemployment caused by changes in the seasons
• Which industries commonly experience seasonal unemployment?

  Agricultural, hotel, and leisure industries
• What is demand deficient unemployment caused by?

  Lack of aggregate demand in the economy and therefore a lack of derived demand for workers
• Who developed the theory of demand deficient unemployment?

  John Maynard Keynes
• What happens to businesses during a recession that leads to demand deficient unemployment?

  They reduce output and need fewer workers
• How does a negative multiplier effect relate to demand deficient unemployment?

  Unemployed workers reduce consumption in other businesses
• What is the equilibrium wage rate?

  When demand for labour equals supply of labour
• What happens at the equilibrium wage rate?

  There is no unemployment in the economy
• What does the demand for labour curve show?

  Total demand for labour at different wage rates
• Why does the demand for labour curve slope downwards?

  Higher wages lead businesses to seek alternatives
• What does the supply of labour curve show?

  Total supply of labour at different wage rates
• Why does the supply of labour curve slope upwards?

  Higher wages attract more people to work
• What is demand deficient unemployment a theory of?

  Unemployment caused by lack of demand
• What is the Keynesian view on wages during a recession?

  Wages are sticky downwards
• What are some reasons for wages being sticky downwards?

  National living wage, trade unions, benefits system
• What is the Keynesian solution to demand deficient unemployment?

  Boost demand in the economy
• How can the government boost aggregate demand?

  By reducing taxes and increasing spending
• What is the impact of government intervention on national output?

  Creates a positive multiplier effect
• What is real wage inflexibility unemployment associated with?

  Disequilibrium in the labour market
• What do classical economists believe about the labour market?

  It is inflexible and not operating freely
• How does an inflexible labour market contribute to unemployment?

  Workers demand wages higher than equilibrium rate
• What happens if the labour market was flexible?

  Unemployed workers would accept lower wages
• Who developed the classical view of unemployment?

  Friedrich Hayek
• What are the main causes of unemployment?

  1. Structural unemployment
  2. Frictional unemployment
  3. Seasonal unemployment
  4. Demand deficient unemployment
  5. Real wage inflexibility unemployment
• What are the barriers preventing wages from falling in a recession?

  • National living wage laws
  • Power of trade unions
  • Benefits system
  • Motivation/productivity impact
• What is the relationship between aggregate demand and unemployment?

  • Low aggregate demand leads to higher unemployment
  • Boosting aggregate demand can reduce unemployment
• How does government intervention affect the economy during a recession?

  • Increases aggregate demand
  • Creates a positive multiplier effect
  • Reduces unemployment
• Who developed the view of unemployment discussed in the text?

  Friedrich Hayek
• How does the classical view of unemployment relate to the Keynesian view?

  Both see unemployment as caused by market disequilibrium
• What is the classical view on the cause of unemployment?

  It is due to inflexibility in the labour market
• What does an inflexible labour market result in?

  Barriers preventing wages from reaching equilibrium
• What happens when unemployed workers demand higher wages?

  It leads to decreased demand for their labor
• What is the national living wage (NLW)?

  A law preventing wages from falling below a level
• How do trade unions affect wage flexibility?

  They protect workers' rights and pay