wk 10- unemployment

• For disequilibrium unemployment to occur the aggregate supply of labour must exceed the aggregate demand for labour, there must be a stickiness in wages. However even when the labour market is in equilibrium not everyone looking for work will be employed.
• Unemployment rate- percentage of labour force without a job but registered as being willing and available for work
• Labour force- people holding a job or registered as being willing and available for work but not yet working 
• Participation ratio- percentage of the population of working age declaring themselves to be in the labour force
• social/political- unemployment is usually an unhappy experience, often blamed on government so make politicians concerned
• Economic resource cost- unemployed person is a wastage of a scarce resource which means lower production and welfare for society
• Fiscal cost- bad for public finances, lower tax revenues, higher social security and other transfer payments which worsens fiscal positions
• Human capital cost- workers lose their skills which depletes human capital stock and hinders longer-term potential of a country
• Duration- long term is a higher concern as its harder to attract employers interest, becoming demoralised and less likely to apply for jobs
• Age structure- more concerned about youth unemployment, as losing out on vital training at crucial time, around globe this is relatively high for under 25s compared to actual unemployment rate in each country
• Demographic- between ethnic groups, male and female
• Regional distribution- may there be a case for regional aid directed at bringing jobs to workers rather than a policy of encouraging workers to move to jobs 
• Frictional- irreducible minimum level, should not worry policy makers since people moving between jobs or students temporarily unemployed while seeking first job is not necessarily a bad thing
• Classical unemployment- arises when wage is deliberately maintained above level at which labour supply and labour demand schedules
• Regional unemployment- regions have unemployment rates well above national average
• Cyclical unemployment- type of unemployment varies with business cycle, increases recession as people are temporarily laid off falls during an expansion
• Seasonal unemployment- arises from some workers being laid off at certain times of the year
• Modern classification of unemployment 

  Looks at supply of labour and makes a distinction between those willing to work at going wage rate and those who are not willing for whatever reason to work at going wage rate 
• Modern classification of unemployment

  Voluntary unemployment- he or she chooses not to accept a job at going wage rate 

  Involuntary unemployment- he or she would be willing to accept job at going wage but cannot get offer 

  Natural rate of unemployed- when labour market is in equilibrium, entirely voluntary and it frictional unemployment and structural unemployment 
• Supply side policies

  use of microeconomic incentives designed to raise the level of full employment and potential output reducing the rate of unemployment. In the long run the performance of the economy can only be changed by affecting level of full employment and corresponding level of potential output 
• Trade union reform- reducing power may help limit distortions in the labour market and reduce real wages to equilibrium levels 

  Training and education- designed to improve productivity and employability 

  Efficiency measures- improving efficiency in labour market 

  Investment- may increase demand for labour which might be achieved via tax incentives or low interest rates 

  Social security reform- creating incentives for people to take up jobs 
• Hysteresis

  A temporary fall in aggregate demand can lead to a persistence of unemployment even when the fall has been reversed. Has been put forward as an explanation of high and predestined unemployment in Europe since the 1980s till present day 
• Hysteresis

  insider -outsider distinction 

  Only those in work take part in wage bargaining protect their own positions in the recovery, paying themselves more, limiting number of jobs for unemployed outsiders 

  Discourage workers- some stop looking for jobs

  Search and mismatch- firms and workers get used to low search, when economy recovers people that have been unemployed have lost skills required and thus are not re employed 

  Capital stock- low level of investment lead to permanently low capital stock, lower levels of labour productivity and therefore workers less employable