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Unemployment (Types, causes and policies (Cyclical unemployment (demand…
Unemployment
Types, causes and policies
Structural unemployment
Causes
Change in Demand Pattern
Decrease demand in some industries while other industries experience an increase in demand. Sacked workers must find new employment but they may not be able to because skill set does not match with available jobs
Change in Supply Conditions
Technological unemployment: Introduce new labour saving machines/new techniques/processes that allows the same output by fewer workers
Do away with certain jobs and skills while creating new jobs which few can do due to a lack of skills (aka occupational immobility)
Regional unemployment may also occur: Certain regions have full employment while others do not
Movement of industries: Developed country moves production to a developing country where opportunity COP is lowered. Workers in the industry in the developing country are unemployed because their skills are not needed
Policies
Provide retaining facilities to upgrade skills of workforce
Subsidies to encourage workers to develop sought after skills
Manpower planning to gear education system to meet economy's requirements
Tax incentives & subsidies to encourage growing industries to move into depressed areas
Agreement to employ workers made redundant by new tech/machines
Developed countries: due to competition from emerging economies
More serious than frictional unemployment because it lasts longer & requires more resources (retain workers)
Frictional unemployment
Caused by IMPERFECT INFORMATION
Job seekers cannot find a suitable job, spend a lot of time --> inefficient
Companies are not looking to hire because they believe there are no qualified workers
Policies
Tackle imperfect info
Establish labour exchange (Jobs central/My Careers future) for better job information & improvements in employment exchange services
Improve industrial relations to reduce breakdowns & bottlenecks. Better staff management, fewer strikes, fewer voluntary resignations, fewer sacked workers
Not a serious problem unless time lag is very significant
Cyclical unemployment (demand deficient)
Caused by a deficiency of effect demand for labour
Economic recession, decrease in AD, decrease in RNY. Fewer G&S supplied, decreased demand for labour, increased unemployment, lower income, lower C, lower AD...
Policies
Expansionary monetary or fiscal policies to increase credits/money supply or lower taxes and increase expenditure on G&S and public goods. Output will increase so that demand for labour increases. Increase C, increase I, overall increase AD
Irregular & unpredictable because it follows alternating booms & slumps in economic activity
Serious if the country has greater integration with global economy and increased reliance on external demand
Seasonal unemployment
Causes
Annual weather cycle
Lower employment after harvest season, high employment during harvest season
Bad weather, fishermen cannot go to sea and fish/cannot build roads, construction stops
Traditions and customs
Policies
Work sharing programme to share the available employment equally among workers (disguised unemployment may occur)
Rearrange production processes to spread production evenly throughout year (only possible if stocks are carried in off-peak seasons
Add other lines of production to create different jobs duing peak and off-peak seasons
Less developed countries because economies comprise largely of agriculture based activities
Real Wage unemployment
Caused by an increase in real wages above market clearance level
Minimum wage law
Trade unions bargain for higher wages
Increase in wages, increased willingness of workers to find jobs, excess labour supply over demand
Policies
Restrict power of trade unions & reduce or remove legal minimum wage to set wages at realistic levels that reflect the changing DD & SS conditions
Measurement
Unemployment rate (%%)
No of unemployed/labour force
Natural unemployment = frictional + structural unemployment
The rate of unemployment estimated to prevail in LR equilibrium
Labour force participation rate (%%)
labour force/working age population
Consequences
Social
Decline in Physical & Mental health
Unemployed, lower income, lower C, lower quality and quantity of G&S consumed. Overall decrease in SOL.
Increased divorce & crime rates, increase in income inequality, increase in poverty rates, decrease in real income & spending, lesser social cohesion, increased violence and mass protest. Increase social unrest
Economic
Loss of Productive capacity
In long term, unemployed workers may face an erosion of skills and opportunity of finding future employment is lowered, which lowers the quality of the workforce
Some workers may exit from labour force permanently
Fiscal costs to govt
Increased tax/decreased spending on public and merit goods
Fewer people working, lower income, lower C, lower tax revenue
If increased unemployment, increased spending of Govt on unemployment benefits, may cause a budget deficit
Loss of output G&S & Welfare
Some workers leave labour market permanently because no motivation to find a job, lower LRAS, decrease in growth potential
Unemployment, waste of scarce resource, lower output, welfare not maximised
Definition
No of people of legal working age who are willing and able to work but are unable to find suitable employment
Contextualised (SG)
Asian Economic crisis (July 1977)
Policies
Decrease wages by 5% to 8%
Decrease employers CPF contribution rate by 10%
10% corporate tax rebate
55% property tax
10% - 40% concession rental rebates
tariff reduction
Rebate on electricity tariffs
$20.5 billion stimulus package by govt
General Info
Decrease in business demand and consolidation of local business operations
SG dollar depreciated against US dollar but appreciated against regional currencies. Wage competitiveness decreased
Applies to all factors of production but emphasis is labour
Do not count voluntary unemployment because not willing to work
Underemployment is possible if they do not find suitable jobs. Produce below productive capacity
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Attractive to those who may lose their jobs but not beneficial to industry, especially if it is a competitive industry. Burden on govt increases as well
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Time lag before person finds employment