Unemployment continuation

Employer’s national insurance contributions in the UK rose in 2024 to be 15% of salary. In other words, employers must page 15% of the salary they pay workers as additional tax.

📌 2. Reduced hiring + higher unemployment risk

Higher NICs make hiring more expensive as they have to pay workers more on top of their wage making hiring more expensive therefore overall making production costs higher.

Pauls writing: Higher national contributions will increase the costs to firms and. as it is a national tax, will impact on the AS curve. The AS curve will shift up and to the left (AS to AS2) causing a fall in real GDP (Y1 TO Y2) and an increase in the price level. Higher cost of employing workers decreases firms profit margins therefore they may reduce and let go workers to decrease production costs. This higher cost has an impact similar to real wage unemployment because the demand for labour has fallen.

NA- Why does the keynesian graph start flat

The increase in NI contributions will increase the price level as firms need to increase prices to recover their costs.

This has an impact on households because consumer confidence will increase alongside a fall in real disposable income for households as they cannot buy as much with their income. This means households will have a lower living standards and reduce spending on luxury goods

This is likely to have a bigger impact on low income households. Who already are in a cost of living crisis. As an increase in prices will have a impact on Household necessities such as food and energy costs.

The extent of the prices and fall in real GDP will depend on:

Whether or not firms are able to to absorb the increase in the employment taxes. Large companies with high profits may be able to afford not to increase prices immediately, where as smaller firms with lower profit margins may not be able to survive without increasing prices and making workers redundant.

Weather or not other costs to firms are changing. If there are falls in, say energy prices, then this will offset the impact of the higher tax.

At the moment the impact of the employer tax will be to add higher costs already higher costs from the Iran conflict.

LONG ESSAY STRUCTURE

Identify the cause and effect

Make a plan..(Brief).. based on the cause and effect

At the start of a timed essay, give an answer to the question that incorporates your knowledge of material to be explained.

The Iran conflict has increased the price of oil from $64 per barrel to over $100 per barrel.

Examine the impact of such an increase in oil prices on the UK economy.

This will cause a decrease in supply. Increase AD , decrease in GDP.

An increase in the price of supply will cause a decrease in GDP as there will be less spending in the economy due to this shortage. Alongside this it will rise unemployment as jobs that require transport is going to be more expensive.