Unemployment: the number of people of the legal age who are willing and able to work but are unable to find suitable employment


voluntary= those who dont want to work at the going wage rate (not part of calculation as they are not WILLING to work)


involuntary= those who are willing and ready to work at the going wage rate but are unable to find jobs


underemployment/disguised= those who are employed but working below their productive capacity eg. maid w/ computing degree


full= level of employment sufficient to produce the economy's potential output (=/= zero unemployment)

natural unemployment= frictional + structural


(always exists)

frictional unemployment


temporarily unemployed (just graduated or just sacked) due to imperfect information (both employee and employer) on finding job/worker, hence have to spend time searching

structural unemployment


when skills of labour force do not match the available jobs (mismatch of skills and opportunities) due to changes in the economy's structure (eg. move from low end labour intensive manufacturing to high tecch and capital intensive knowledge based industries-> technological unemployment)


affects old/lowly educated more

changes in patterns of demand
(due to changes in T&P)

changes in supply condition
(eg. introduction of new labour saving tech such as automation)

EV: extent depends on speed of change of demand and supply conditions


whether workers are willing to be retrained and upgraded

EV: smaller country = smaller frictional problem
(easier to know info/find jobs hiring)

  • better internet penetration = smaller frictional problem
    (easier to search for jobs online)

  • any point of time will have this problem, inevitable


  • solution= job matching thru exhibitions by gov

cyclical unemployment

  • due to changes in business cycle (boom or recession)
    due to low AD when there is economic recession--> buy less--> firms cut back on pdtn--> sack workers--> unemployment

seasonal unemployment


due to traditions or weather cycle (eg. durian season/durian sellers, ski resorts/winter)

real wage unemployment


when real wages are forced above market clearing level (min wage law)

economic impact


  • loss of o/p
    ( potential workers not working )
  • fiscal costs to gov
    ( dont pay income tax=less tax revenue + unemployment benefits )
  • loss of productive capacity
    ( erosion of skills over time = workers become deskilled, quality of labour reduces)

social impact


  • lowered SOL (rise in crime, divorce, stress, income etc)

policies to solve


  • upgrade retrain educate
    (eg. skills future, workfare training scheme)

EV:


  • long time lag (takes time)
  • older workers not receptive
  • costly, gov subsidies needed-> budget deficit+opp cost
  • firms unwilling to send workers to retraining as might job hop

policies to solve


  • better job info and employment systems (eg. job matching exhibitions/websites by gov)

policies to solve

expansionary fiscal policy


  • increase G-> increase AD-> increase NY-> increase pdtn-> increase employment


  • lower corporate tax-> higher after tax profits-> increase I-> increase AD...increase employment


  • lower income tax-> increase disposable income-> increase C... increase employment

expansionary monetary policy (not used by SG)


  • lower i/r-> lower COB-> increase C+I-> increase AD...increase employment

EV:


  • G reqs gov fund -> might lead to budget deficit + opp cost incurred


  • if gov no G, crowding out effect (gov borrow from banks-> increase DD for loanable funds)->increase i/r->increase COB-> lower C + I-> lower AD


  • time lag (recognition + implementation)


  • for SG, G/I/C useless cus we depend on X-M

EV:


  • if outlook is pessimistic, even if lower i/r, increase in I will be less than proportionate


  • SG mainly FDI, FDI MNCs not effected bc if need $$, can get from parent company overseas

exchange rate policy


  • depreciate currency->price of X ITO foreign cheaper->X increase-> AD increase