work sheet on

Low Unemployment Worksheet

Objective 1: Explain what is meant by unemployment.

Define the following:

Unemployment	People of working age who are without work but are available for work and  are actively seeking work.
Unemployment Rate	Number of people unemployed expressed as a percent of the labor force
Labor Force	Definition varies from country to country but includes people willing, able and wishing to work between the legal work age and retirement.

Objective 2: Explain the difficulties involved in measuring unemployment.

Limitations of unemployment data:

Unemployment definition inconsistencies	Depends from country to country so we can not compare
Data collection inconsistencies	Different countries collect their data is in different ways
Masks Distribution Disparities	Ethnicities Age Gender
Hidden Unemployment	Discouraged workers- someone who has given up on looking for a job Part-time workers- half time work, not enough Underemployed workers- over qualified for the job they are doing

 Objective 3: Discuss the costs of unemployment.

Costs to unemployed themselves	No income, low standards of living, possible suicides
Costs to society	Opp. Cost, Poverty, higher rates of crime, vandalism, increased gang activiety
Costs to               whole economy	Producing within the ppc curve Opp cost to the government

Objective 4: Distinguish between the different causes of unemployment.

Inflows- cause unemployment rate to rise

Lost jobs

Resignment

People who have left school

People trying to return to work after having left it

People who have imigrated

‘Pool of Unemployed’

Outflows- cause unemployment rate to drop

People who have found jobs

People who retire

People who go back to education

People who choos to stay at home

People who emigrate

People who give up the search for work

People who passed away

The labor market in equilibrium

 

Types and causes of unemployment.

a)      Disequilibrium unemployment-occurs when there are any conditions that prevent the labor market from clearing

b)      Real wage-unemployment

Argues that unemployment is caused by trade unions and government minimum wages altering with labor market

 

Solutions for real wage unemployment.                                                  Consequences of the solutions.

Reduce trade unions to unfluence wages	Politcaly un popular Harms poor the most Causes greater income inequality
Reduce minimum wage

a)      Demand-deficient (cyclical ) unemployment- as countries enter a period of slow growth c and I go down which leads to a decrease in aggreagate demand but because wages are sticky downward so unemployment results

 

Solution for demand-deficient unemployment.

Expansionaray policicits fiscal monetary	Lower taxes increase gov spending
	Lower interes rates increase money supply

c)       Equilibrium Unemployment- (equal to the natural rate of unemployment or full emplyent elevel output) occurs when there is no real wage or demand defiant unemployment; still some natural unemployment excists (frictional season structure)

 

a)      Frictional Unemployment- short term unemployment when people are between jobs or have left education and are waiting for a job. *people usually move up though.

Solutions for Frictional Unemployment

Market based : ensure unemployment benefits are not too generous

Interventionis: ensure flow of information about existing jobs is good

b)      Seasonal Unemployment- when employment occurs on a seasonal babsis again- intuitively natural; ie construction workers in cold climate.

Solutions for Seasonal Unemployment

Improve the flow of imformation Encourage seasonal workers to ake new jobs

c)       Structural Unemployment- results when a particular type of labour is no longer needed, due to a number in structure within the economy likely to result in long term unemployment

Causes of Structural Unemployment

Wworkers lack skills to take new jobs

Lack occupational mobility

Lack geographic mobility

New technologies (atm)

Outsourcing call centers

Consumer taste

Interventionist solutions to structural unemployment                                                      Evaluation of solution

Use an edu system that trains people to be occuplationally flexible	Only effective long term
Increase gov on adult retraining programs
Subsidizes to firms that provide worker training	Opp costs
Subsidies – tax breaks to encourage geographic mobility	Expensive
Gov support of apprentice programs

Market-based Solutions for Structural Unemployment

Lower unemployment benefits to increase incentive for people to take existing jobs	Increase income inequality
Lowe labor market regulations to make it easier for firms to hire/fire	Working conditions+ hugh costs to workers themselves

Analysis of unemployment reducing policies

Solution to unemployment- dependent on type- hard to determine

Demand deficient Expansionary fiscal policy ofton requires budget deficients

Lower taxes does not always mean. People may choose to save and not spend

Lowering interest rates does not mean and increase in investman, depends on business confidence

If AD policies successful- there will be likely be a time lag

Even at yf there will be some unemployment Have to be careful to avoid ad policies at yf due to inflation

Most common/ acceptable to use mix of demand and supply side politics

Crowding out-

The concept that when govs run budget deficits to increase AD and reduce unemployment they ‘crowd out’ busineses and private individuals from loanble funds market causing interst rates to increase and I to decrease.

Keynesian viewpoint on Crowding-out:

  Classic viewpoint on crowding out: