unemployment (labour market)

aggregate demand for labour curve

curve which shows total demand for labour work at different average real wage rates

aggregate supply of labour curve

curve which shows the total number of people willing to work at different average real wage rates

disequilibrium unemployment

unemployment due to real wage rates being above equilibrium (AS and AD curve do not intersect meaning there is more of the other and vice versa)

equilibrium/ natural unemployment 

those who will work at the current wage = those who are willing to take a job

imperfect information

employers or workers who are not fully informed about the jobs available

money illusion

belief that an increase in wages means they are better off, they don’t realise prices also rise by the same amount

natural level of real income (output)

level of output is consistent with the equilibrium/natural level of employment

how do classical economist view the relationship between prices and wages in terms of AD/AS?

fall in AD causes a fall in prices whilst equilibrium will remain stable at the natural level of output and a fall in nominal wages will cause no disequilibrium unemployment

how do Keynesian economist view the relationship between prices and wages in terms of AD/AS?

sticky prices and wages means a fall in AD will mean a fall in employment and disequilibrium will occur. the slower prices/ wages to adjust = longer this will persist

how do you calculate the labour force

labour force = number of employed + unemployed (of working age)

what affects long-term unemployment

• number of unemployment, more competition for vacant jobs

• rate of ‘flow’ employed← →unemployed

• phases of the business cycle

real-wage unemployment

unbalance of unemployment caused by disproportionate increase of real wages

structural unemployment

change of demand and supply which leaves people unable to work

technological unemployment

advances in technology which decreases job opportunities eg online shopping

regional unemployment

structural (change in d/s of the economy) unemployment which happens in specific regions of the country

personal costs of unemployment

• loss of earnings

• mental strain (extends to family and friends)

• loss of skill and motivation (long-term)

costs to the society

• lower output (firms lose profit)

• lower income for those providing goods and services (G loses tax revenue, increased taxes to support benefits etc)

• violence and crime increases

equation for unemployment rate (u)

u = unemployed/ labour force

Equation for Duration of Unemployment (Du)

Du = unemployed (U) / outflow from unemployment (F)

demand-side policies

government / main bank actions to adjust interest rates or takes to manage inflation, unemployment and economic growth

supply- side policies

increasing the resources and education/ training to increase the supply of goods and services, causing the economy’s long-run productive capacity