2.1.3 Employment and Unemployment

• What are the 4 main types of unemployment?

  Seasonal, structural, frictional and cyclical
• What is seasonal unemployment?

  Regular seasonal changes in employment/labour demand for examples tourism, retail, agriculture and construction industries
• What is structural unemployment?

  Arises from the mismatch of skills and job opportunities as the pattern of labour demand changes it is linked to labour immobility
• What is fractional unemployment?

  Transitional unemployment due to people moving between jobs for example new entrants to the labour market
• What is cyclical unemployment?

  Caused by a fall in or persistent weakness of aggregate demand leading to a decline in real GDP and jobs
• What causes structural unemployment?

  Decline of manufacturing, occupational immobility, geographical immobility, robots replacing jobs, foreign competitors, long time regional decline, disentives (poverty traps), outsourcing production overseas
• What are the economics costs of high unemployment?

  No taxes paid, no money flowing into the economy, people don't have as much money in general, benefits reduced, government spending higher
• What are the social costs of unemployment?

  Extra demand on public services, fall in standard of living, benefits reduced, cut back in public sector, poverty, people are depressed as they don't have a job
• What are the benefits of high unemployment?

  Businesses have a wide choice of labour, more jobs are available but its more competitive and a reduced risk of inflation
• What is the scar of unemployment?

  Loss of work experience and current/future income, changing pattern of jobs in the economy
• What are the policies to reduce unemployment (labour demand)?

  macro stimulus policies- low interest rates

  cutting the cost of employing workers- reduction in corporate tax

  competitiveness policies- tax incentives, encourages investment
• What are the polices to reduce unemployment (labour supply)?

  reducing occupational mobility- teaching new skills

  improving geographical mobility- keep property prices low

  stimulate stronger work incentives- higher minimum wage
• Why might someone not want to go to work?

  They are better off living off the benefits as earing a job would make them pay taxes due to low paying jobs as they would be skilled with limited education
• What does capital-labour substitution mean?

  Replacing workers with machines to increase productivity and reduce the unit cost of production
• What does cyclical unemployment mean?

  Unemployment caused by a persistent lack of aggregate demand for goods and services
• What is discouraged workers?

  People out of work for a long time who may give up on job search and effectively leave the labour market
• What does full-employment mean?

  When there enough job vacancies for all the unemployed to take work
• What does geographical immobility mean?

  Difficulty in moving regions/areas to get a job
• What is hysteresis?

  When a sustained period of low aggregate demand can lead to permanent reduction in the active labour supply
• What is involuntary unemployment?

  A situation where a worker is willing to work at the going wage rate but cannot find a job
• What is long-term joblessness?

  People who have been unemployed for at least one year
• What is NAIRU?

  The rate of unemployment consistent with stable inflation
• What is occupational immobility?

  Difficulties in learning new skills applicable to a new industry, and technological change
• What is the participation rate?

  Percentage (%) of the population of working age declaring themselves to be in the labour force
• What is the Phillips curve?

  Shows a possible trade-off between inflation and unemployment
• What is real wage unemployment?

  Theory that wages above the market clearing equilibrium may cause unemployment
• What is under-employment?

  When people want to work full time but find that they can only get part time work
• What is unemployment rate?

  Proportion of the economically active population who are unemployed
• What is unemployment trap?

  When the prospect of the loss of unemployment benefits dissuades those without work from taking a new job
• What are zero hour contracts?

  Jobs that do not guarantee a minimum number of working hours each week
• What are the benefits on unemployment?

  Large choice for businesses

  Smaller risk in cost push inflation

  Businesses can pay a lower wage
• What are the drawbacks of unemployment?

  Less tax revenue for the Government

  Standard of living will decrease

  Lower amount of local investment