Please enable JavaScript.

Coggle requires JavaScript to display documents.

Chapter 9: Unemployment (Policies to reduce unemployment (Frictional…

- - - - declining demand due to change in consumer tastes as certain goods go out of fashion or competition from other industries
      - if AD falls, may lead to cyclical unemployment and structural unemployment may result if the fall in demand of specific sectors is going to be permanent
      - with persistently low AD, many unemployed may become disheartened and their skills may become obsolete -> structurally unemployed
    - - technical unemployment
        
        occurs when the introduction of new labour-saving technology such as automation, development of new techniques or new processes, allow the same level of output to be produced with fewer workers, leading to a fall in demand for labour and a growth in unemployment
        
        new technology affects unemployment in two ways
        
        doing away with certain jobs and skills
        
        creating new jobs which many of the unemployed are incapable of doing
        
        movement of certain industries to a different location
        
        e.g. developed country move their production to a developing country which may have lower opportunity costs of production
        
        workers in those industries in the developed countries may be unemployed
        
        regional unemployment
        
        occurs when certain regions experience full employment but other regions have unemployment
        
        mainly due to geographical immobility of labour
  - - - excess of labour supply over labour demand
        
        surplus of labour
- - - - an economy with high unemployment is production within its PPC
        
        waste of resources -> loss in production
      - unemployment causes a waste of scarce economic resources
        
        if prolonged, reduce long run growth potential of the economy
      - welfare loss to society represented by the output forgone due to unemployment
      - Prolonged unemployment -> some people leaving the labour market permanently due to loss of motivation to search for work
        
        negative effect on long run AS -> damage economy's growth potential
    - - with fewer people working -> fall in tax revenue
      - unemployed are more likely to spend less
        
        less GST paid
      - no income tax
      - if govt increases spending on unemployment benefits, may cause budget deficit
        
        increase risks that govt will have to raise taxation or scale back plans for spending on public and merit goods
    - - unemployment wastes some scarce resources used in training workers
      - more severe with long term unemployment
        
        if workers remain unemployed for too long, may face an erosion of skills with time
        
        reduces chances of gaining employment in the future
        
        adverse impact on short term actual growth and potential growth as the quality of the workforce worsens (workforce no longer as productive as before)
        
        illustrated with a leftward shift of the long run aggregate supply or inward shift of PPC
        
        some workers decide to exit the market -> further decline in labour force
  - - - risk that areas with above average unemployment suffer from aging potential workforce
        
        less attractive as investment locations for new business
- - - - e.g. upgrading scales
      - using subsidies to manage the change in economic structure
      - enable workers to learn new skills -> fit into new jobs
    - - control location of industry so as to control level of structural unemployment
    - - Not beneficial in the long run, large burden on the government
    - - create employment opportunities for unemployed workers
    - - agreement must be reached to continue to employ workers who would otherwise be made redundant by new technology
  - - - Rise in production, more labour demanded
    - - Greater money supply and amount of credit available
    - - Lower taxes or raises its expenditure on goods and services
    - - Recommending wage cuts or providing subsidies
        
        Reduce costs of production -> increase SRAS
        
        Leading to rise in employment, economy closer to full employment
  - - - Available employment is spread equally among workers
    - - Production is spread evenly throughout the year
        
        Possible if stocks are carried even in off-peak seasons
  - - - Reflecting the changing demand and supply conditions
- - - - Due to competition from Newly Industrialised Countries or emerging economies
    - - Greater integration with the global economy and thus reliance on external demand
    - - Due to their relatively more rapid advancement in technology
  - - - Poor transport and communication systmes
      - Poor government planning and co-ordination
    - - Economies predominantly being agricultural-based are affected by seasonal demand or climatic conditions
    - - Developed countries are their principal exports markets
        
        When developed countries are facing cyclical unemployment, less developed countries are affected also