Macroeconomics: Unemployment and Employment (Economic costs of…
Macroeconomics: Unemployment and Employment
Economic costs of unemployment:
Stress and health problems of being unemployed
Increased government borrowing. The government spends more on unemployment and related benefits, and receives less income tax
More difficulty getting work in the future, as the unemployed lose' on-the-job skills' and may become less attractive to future employers.
Lower GDP for the economy and possible negative multiplier effect
Loss of earnings for the unemployed, leading to lower living standards.
Increased social division between unemployed and employed
Causes of Unemployment:
Classical or real-wage unemployment
: Occurs when wages in a competitive labour market are pushed above the equilibrium . This could be caused by minimum wages or trade unions.
Occurs when there is a fall in AD, leading to a decline in national income.
2. Structural unemployment:
This is unemployment due to a mismatch of skills in the labour market. It can be caused by
Occupational immobility: This refers to the difficulties in learning new skills applicable to a new industry.
Geographical immobility: This refers to the difficulty in moving regions to get a job. often see higher unemployment in deprived areas.
Occurs when people turn down the opportunity to work at the going wage rate, this is opposed to more common involuntary unemployment. generous unemployment benefits may encourage people to stay on benefits.
This is unemployment caused by people moving between jobs. there will always be some frictional employment, as it takes time to find a job.
Unemployment rates will be higher in certain seasons. Unemployment statistics are often seasonally adjusted to take into account lower rats during busy time periods.
Is defined as when someone is not working, but is actively seeking work and willing to take a job
Occurs when people are not in the labour force. They are neither working nor looking for work.They could include categories such as the elderly, disabled and long term sickness.
Means that the unemployment rate is very low or close to 3%, can also refer to the economy operating on the PPF curve so there is no demand deficient unemployment.
Policies to reduce unemployment:
Lower benefits and taxes: Lower benefits and income tax may increase the incentive for the unemployed to look for work rather than stay one benefits. this could reduce frictional unemployment.
Reducing minimum wages: if the minimum wage is reduced it will enable firms to employ more workers which reduces real wage unemployment.
Better job information: could help to reduce frictional unemployment by giving the unemployed better information about available job vacancies.
Education and training: Structural unemployment could be solved by offering retraining and new skills for the long term unemployed. this provides for opportunity for the unemployed
1.Fisical and monetary policy (Demand side): if there is cyclical unemployment the government could pursue expansionary fiscal policy by cutting income tax to boost consumer spending. Higher A should lead to economic growth.