unit 15 - unemployment

unemployment

people of working age actively looking for a job

Labour force

Number of employed plus number of unemployed of working age

Underemployment

people working part time who want to work full time or qualification are not being used at full potential

How do you calculate rate of unemployment

UR = (number of unemployed/LF) x 100

Difficulties in measuring unemployment

1) Methods of data collection

* source/method can vary
* counting may undercount the actual rate of unemployed
* surveys may miss marginal recessions

2) Group disparities

* regional
* gender
* ethnic/racial

How is unemployment underestimated?

* exclusion of discouraged workers
* excludes informal economy
* doesn’t make distinction between full/part time workers
* doesn’t make distinctions between type of labour
* workers can leave labour force, still have a job, not counted as unemployed

What is the labour market?

a place where households and firms come together to buy and sell labour

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Cyclical unemployment

demand for all types of labour and nation’s goods and services decreases

How does cyclical unemployment arise

* due to fluctuations in a nation’s business cycle
* due to contradictions in public/private spending

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Consequences of cyclical unemployment

* decreased AD and national output
* less output means less workers needed
* short run: lay offs, high wages
* long run: may be reduced as wages adjust

Structural Unemployment

involuntary unemployment for workers whose skills are no longer in demand

Consequences of structural unemployment

* decrease in demand results in pressured wages
* wages do not change
* disequilibrium as number of workers demanded decreases
* workers must accept lower wages
* natural and desired, shows economic growth

e.g min wage

How can we reduce structural unemployment?

1) offering asssitance to workers relocating

2) protection policies e.g tariffs, subs

3) invest in public education and training

Seasonal unemployment

workers are only needed during certain times of the year and are laid off when demand decreases e.g ski instructors, lifeguards

Frictional Unemployment

workers between jobs or just entering the labour force e.g relocating/looking for a new job

* short term
* worker has desirable qualities
* decreases during recessions (fear of losing job)
* increases during economic expansion

Personal Costs of Unemployment

* decreased household income and purchasing power
* physical and psychological impact

Social costs of unemployment

* increased poverty
* transformation of traditional societies

Economic costs of unemployment

* downward pressure on wages for employed
* lower AD
* under-utilisation on economy’s resources
* brain drain (skilled workers may leave)
* more protectionism
* increased budget deficits

Natural rate of Unemployment

combined experiences of frictional, seasonal and structural unemployment

Factors of NRU

* low info on job vacancies
* labour immobility
* mismatch of skills needed by employers
* Hysteresis - out of work for too long
* labour laws protecting unnecessary jobs
* level of unemployment benefits

Relationship between UR and NRU

UR less than NRU

* tight labour market

UR more than NRU

* some cyclical unemployment is occuring