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Economics 2.1.3
Economics- Edexcel 2.1.3
| Question | Answer |
|---|---|
| Measures of unemployment | labour force survey and claimant count measure |
| Labour force survey | official measure of unemployment in the UK that asks 60-70000 households to self-classify as employed, unemployed or economically inactive |
| LFS | labour force survey |
| Requirements to be classed as unemployed in the LFS | of working age(16-64)/without a job,wanting a job, actively sought work in last 4 weeks & able to start in next 2 weeks OR out of work, want job & waiting to start in next 2 weeks |
| ILO | International labour organisation |
| Claimant count measure | counts the total number of recipients of job seeker’s allowance + those who claim universal credit |
| JSA | job seeker’s allowance |
| Universal credit | a payment for people over 18 but under State Pension age who are on a low income or out of work |
| Advantages of the LFS method | same methodology in each country so allows inter-country comparisons/hasn’t changed much so good quality time-series comparisons/rich data set on aspects of labour market including regional labour market activity |
| Disadvantages of LFS method | sampling errors(60000 households) and not everyone who is unemployed is counted so published data will have a % margin of error/costly and time-consuming/only conducted quarterly(won’t pick up changes quickly) |
| Advantages of the claimant count measure of unemployment | exact number so accurate/inexpensive/easily classified/monthly data so timely indicator of economic activity |
| Disadvantages of the claimant count measure of unemployment | lots of unemployed that don’t meet criteria for collecting unemployment benefits,e.g. Have savings, partner works, under 18/too proud to claim/weak at picking up underemployment |
| Economically inactive | those at working age but are neither in work nor actively seeking paid work |
| Employment rate | percentage of population of working age in full-time or part-time paid work |
| Full employment | when there are enough unfilled job vacancies for all the unemployed to take work |
| Labour force | number of people of working age who are able, available and willing to work |
| Long-term unemployed | people unemployed for atleast one year |
| Unemployment rate | percentage of the economically active population who are unemployed |
| underemployed | workers are under-utilised in terms of their abilities, qualifications and experience |
| Underemployment in the LFS | when people are counted within the LFS as looking for an extra job/searching for a job with longer hours/preferring to work longer hours in their current job |
| Unemployment rate rising | rate of unemployment can still decline |
| Cyclical unemployment other names | demand-deficient unemployment or Keynesian unemployment |
| Cyclical unemployment | type of unemployment that is caused by fluctuations in the business cycle or economic cycle and can rise quickly in a recession and increase in periods of slow growth |
| Cause of cyclical unemployment | low levels of aggregate demand which reduces the demand for labour across many industries |
| Effect of cyclical unemployment | AD falls, contraction in real national output, businesses make workers redundant |
| Frictional unemployment | unemployment that occurs from the inevitable time delays in finding new employment in a free market |
| Frictional unemployment causes | workers seeking better jobs or in-between jobs |
| People affected by frictional unemployment | new entrants to the labour market/people relying on short-term contracts/if move between employers frequently |
| How to reduce frictional unemployment | by making information on jobs more widely available and making job search and applications more affordable with cheaper, more accessible transport |
| Structural unemployment | form of involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers |
| Causes of structural unemployment | lack of suitable skills for the job available because of de-industrialisation or other structural changes in the economy or because of barriers(e.g. Unaffordable housing, high cost of childcare and expensive transport services) to people finding work |
| Unemployment trap | situation where there is little financial incentive for someone unemployed to start working as the combined loss of welfare benefits and need to pay income tax or childcare costs might result in them worse off |
| Seasonal unemployment | when people are unemployed at particular times of the year when demand for labour is lower than usual |
| seasonality | fluctuations in output and sales related to the season of the year |
| Sticky wage theory | argues that employee pay is resistant to decline even under deteriorating economic conditions. This is because workers will fight against a reduction in pay, and so a firm will seek to reduce costs elsewhere, including via layoffs, if profitability falls |
| Neoclassical economists | assume all prices and wages can adjust up or down to reach new equilibrium if demand or supply changes, but not when there is government intervention |
| Classical unemployment | occurs when real wages are kept above the market-clearing wage rate, leading to a surplus of labour supplied |
| Other name for classical unemployment | real wage unemployment |
| Trade unions in the market equilibrium | the collective wage bargaining power pushes wages up above the free market equilibrium (supply of labour is greater than demand) |
| Monopsony employers | single employers of a particular type of labour, includes the NHS, that case employment to be lower than the free market equilibrium |
| Imperfections in the labour market | Monopsony/Trade unions/Discrimination/Difficult to measure productivity/Firms, not profit maximisers/Geographical immobilities/Occupational immobilities/Poor information |
| Mass unemployment | a situation where a large percentage of the labour force is unable to find paid employment |
| Great Depression date | early 1930s |
| Examples of mass unemployment | the great depression and Greece after the global economic crisis 2007 onwards(unemployment rose to more than 25% and youth unemployment reached 60% of people aged 18-24 |
| Youth unemployment | the number of unemployed 15-24 year-olds expressed as a percentage of the youth labour force |
| Main reasons for economic inactivity | students in full-time education or training/ looking after family or home/ long-term sickness/ retirement/ discouraged workers |
| Discouraged workers | a person who is eligible for employment and can work, but who is currently unemployed and has not attempted to find employment in the last four weeks likely due to finding no suitable options or failing to secure jobs that they applied for |
| why is long term unemployment bad? | it’s a major structural problem where the longer people are out of work, the harder it is for them to get back into it often because their skill worsen/motivation suffers/intensity of jobs search falls/employers favour those without gaps in CV |
| negative economic and social impacts of unemployment | slower long-run trend rate of GDP growth/risks of a period of price deflation/income inequality/erosion of skills(LT unemployment)/fiscal budget costs(tax revenues shrink & state welfare spending increases)/externalities from social problems |
| why is there a risk of a period of price deflation from large scale unemployment | AD falls and there is a large negative output gap |
| impact of unemployment on aggregate demand | recession causes fall in AD, contraction in real GDP, spare capacity + negative output gap, businesses lower prices to clear excess stock & boost revenues, lower retail prices drive annualised rate of inflation below zero |
| loss of work experience from rising unemployment | reduced employability from a depreciation of skills, gaps in CVs may influence potential employers, decline in quality of human capital |
| loss of current and future income from rising unemployment | vulnerability of the unemployed to consumer debt at high interest rates, decline in physical health and increase in stress |
| changing pattern of jobs in the economy from rising unemployment | new jobs in the recovery stage are different from lost ones, structural unemployment and occupational immobility make it harder for people to get jobs |
| policies to reduce unemployment | macro stimulus policies/cutting the cost of employing extra workers/competitiveness policies/reducing occupational mobility/improving geographical mobility/stimulate stronger work incentives |
| macro stimulus policies help reduce unemployment by: | possible positive multiplier effects- low interest rates + improved credit supply to businesses, depreciation in the exchange rate(helps exporters), infrastructure investment projects |
| stimulus package | a collection of economic actions taken by the government to stimulate the economy |
| credit | the ability of an individual or organization to obtain goods or services before payment, based on an agreement to pay later |
| cutting the cost of employing extra workers helps reduce unemployment by: | reductions in the percentage of national insurance contributions paid by employers, extra funding for regional policy |
| competitiveness policies help reduce unemployment by: | reductions in corporation tax/tax incentives for research or innovation spending/enterprise policies to encourage new business start ups |
| reducing occupational mobility helps reduce unemployment by: | better funding for and more effective in-work training, teaching new skills, an expansion of apprenticeship and paid internship programmes |
| improving geographical mobility helps reduce unemployment by: | rise in housebuilding to keep property prices lower and encourage more affordable housing rents/active regional policy to improve the quality of and access to transport infrastructure |
| stimulate stronger work incentives helps reduce unemployment by: | higher minimum wage, increased tax-free allowance of £12,500 to reduce income tax for low-paid workers, welfare reforms to help reduce the risk of the poverty trap |
| lower employment taxes as a policy to increase employment and unemployment | cut national insurance, lowers cost of taking on extra workers, provides incentive for firms to add extra workers to pay-roll, increase employment, tax cut can be targeted at long-term unemployed people |
| national insurance | tax paid on each worker employed by a business |
| economic and social benefits of falling unemployment | increased employment(increases real GDP & lifts living standards & demand), more people in work=extra tax revenues for lowering budget deficit or increase spending, lowers social costs |
| potential disadvantages of falling unemployment | extra spending from expanding labour markets may worsen current account/risk of acceleration in demand-pull and cost-push inflationary pressures if rapid fall/fewer spare labour causes a rise in unfilled vacancies and putting off inward investment |
| impact of migrant workers on labour market depends on what factors | migrant skills/skills of existing workers/characteristics of the host economy |
| impact of net positive immigration | increase in labour supply,wages fall/increase in population size increases demand for goods & labour,new jobs,wages are stable/migrant workers=‘substitutes’ for native workers,higher competition,wages fall/workers=‘complements’ so there are wage increases |
Created by:
jessharris
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