employment and unemployment

• Full employment


  The highest level of employment possible
• Full employment is often considered to be achieved when the unemployment rate falls to 3%
• In practice, at any particular time, some people may be experiencing a period of unemployment as they move from one job to another job
• For NZ, full employment will be between 1 and 3%
• Equilibrium unemployment


  Exists when the aggregate demand for labour equals the aggregate supply of labour
• At equilibrium unemployment, there will be no pressure for the real wage rate to change
• Those willing and able to work at the current wage rate will have a job
• Reasons some people may not have a job

  • Not willing to accept current wage rates
  • Lack of information about job vacancies
  • Do not have the skills or qualifications required
  • Not able to move to where the work is
• ALF = aggregate labour force
• ALF includes those willing to work at wage rate W, those looking for better paying jobs, those in between jobs, and those who lack the skills/qualifications and/or are geographically immobile
• As wage rates rise

  A larger number of the labour force will want to work
• Unemployment is YZ
• Disequilibrium voluntary unemployment


  Occurs when the aggregate supply of labour exceeds aggregate demand
• Keynesians state that the labour market can be in disequilibrium for long periods of time
• Reasons wage rate can remain above equilibrium

  • Higher minimum wage
  • Strong union activity
  • Workers resist wage cuts
• Unemployment of XY will be for longer periods of time
• Cyclical unemployment


  Unemployment that arises as a result of a recession
• Lowering the wage rate will not solve the problem of unemployment
• A lower wage rate will lower aggregate demand for goods and services and lower demand for labour
• Natural rate of unemployment

  The rate of unemployment that exists when the aggregate demand for labour equals the aggregate supply of labour at the current wage rate and price levels
• This could be 1 to 3% unemployment in NZ
• Government increases spending to curb unemployment

  1. AD rises

  2. Demand for labour rises

  3. Push up wage rate

  4. Move ASL closer to ALF

  5. Increase price level
• Factors that determine the natural rate of unemployment

  • The value of unemployment benefits to the value of pay
  • National minimum wage
  • Quality of education and training
  • How workers are affected by periods of unemployment
  • Quality of information about job vacancies
  • Degree to which labour is mobile
  • Flexibility of workers and firms
• Policies to reduce natural rate of unemployment

  • Cut the rate of unemployment benefits
  • Remove restrictions on how much firms can pay
  • Improve education and training
  • Increase quality and quantity of information about available jobs
  • Improve labour mobility
  • Increase flexibility in the labour force
• Unemployment will be higher in declining industries and occupations
• Unemployment can vary between regions within a country
• Unemployment in most countries is higher among young workers
• Certain groups may experience discrimination in the labour market and so may experience a higher than average unemployment rate
• Patterns and trends in employment

  • Industrial structure
  • Proportion of women in the labour force
  • Employed and self-employed
  • Full-time and part-time
  • Employment in the formal economy and informal economy
  • Secure and insecure employment
  • Public and private sector employment
• Factors affecting occupational mobility

  • Quality of education and training
  • Information available
  • Barriers to entry and exit
  • Time
• Factors affecting geographical mobility

  • The price and availability of housing
  • Information available
  • Personal ties
• Additional factors that influence movement between countries

  • Immigration controls
  • Language barriers
  • Cultural differences
  • Differences in pay and the cost of living