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Unemployment (Types (Frictional Unemployment (Policies to resolve (Better…
Unemployment
Types
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Cyclical Unemployment
Policies to resolve
Using expansionary monetary and fiscal policies - helps to stimulate the levels of consumption and investment spending
Supply management policies to reduce structural rigidities (ie. provide subsidies, introducing wage cuts) to increase SRAS and employment
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Real Wage Unemployment
Policies to resolve
Wages should be set at more realistic levels, relflecting the changing demand and supply conditions
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Consequences
Economic impact
Loss of output of goods and services due to waste of scarce economic resources. Long run growth potential may be reduced, resulting in loss in production hence loss in welfare. LRAS will decrease
Fiscal costs to the government will be incurred due to fall in tax revenue (income tax and GST tax).Government will have to raise taxation or scale back plans for spending on public and merit goods
Loss of productivity when scare resources used in training workers are wasted. Erosion of skills reduces chances of gaining employment, leading to adverse impact on SRAS and LRAS and inward shift of PPC
Social impact
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Area of high unemployment will see decline in real income and rising poverty and income inequality. Due to mobility of younger individuals, the area will suffer from ageing potential workforce
the number of people of the legal working age who are willing and able to work but are unable to find suitable employment
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Imperfect information results in a time lag before job seekers find the right job or firms hire the right candidate.
Qualified unemployed workers cannot immediately be matched up with existing job openings while company believes there are not enough qualified individuals available for the job when in realty there may be qualified workers
1) Change in Pattern of Demand due to change in consumer tastes as certain goods go out of fashion or competition from other industries. Due to lower business prospect hence lower production, firms may cut down on employment of labor. If employees do not have the skills to get a job in other industries with higher demand, structural unemployment will occur.
2) Change in Conditions of Supply.
Technological Unemployment arises when the introduction of new labor-saving technology allows the same level of output to be produced with fewer workers. This leads to a fall in demand for labor and growth in unemployment. New technology may also create new jobs which many of the unemployed workers are incapable of doing.
Certain industries may be moved to a different location such as developing countries due to lower cost of production. As a result, the skills of the workers of those industries are no longer required in that economy (country) hence they may not be able to get another job.
Regional Unemployment occurs when certain regions have full employment while other regions have unemployment. This may be due to geographical immobility of labor.
Usually associated with business cycle which alternates between booms and slumps in economic activity. Such unemployment is unpredictable and irregular.
Cyclical unemployment or demand deficient unemployment arises when there is an economic recession. A decrease in AD results in a fall in NY and N output. Hence fewer workers will be required to produce goods and services. The employer may ten lay off workers and cut back on employment
Results from seasonal fluctuations in the level of economic activity. Such unemployment is both regular and predictable. It could be due to annual weather cycle or traditions and customs
When wages are higher or minimum wage is implemented, there will be an excess of labor supply over labor demand, resulting in a surplus of labor.
Agreements to hire surplus workers will raise costs and may worsen the decline of an industry. This will become an increasingly large burden on the government.