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H2 Economics: Unemployment - Coggle Diagram
H2 Economics: Unemployment
Definitions
Labour Force:
Employed and Unemployed people
Unemployed:
Adult, Non-institutionalized civilian without a job and actively looking for work
Working Age Population:
15 yrs and over, below retirement age. Includes labour force + economically inactive
Unemployment Rate:
Unemployed / total * 100% (in labour force)
Types of Unemployment
Structural unemployment:
Due to lack of AD (represented by gap between Yf and current real output. E.g. 2008 Crisis
Structural unemployment:
Due to a mismatch between the skills of the unemployed and those required by producers seeking factors of production.
Frictional unemployment:
Due to the time needed for workers to find new jobs or transition between jobs.
Full Employment
Definition:
Structural and frictional unemployment due to fluctuations in unemployment around its natural rate. (Structural and Frictional unemployment may still exist)
AD graph already in Keynesian range. Increasing AD even further will cause only an increase in GPL and no increase in output. Also economy producing on the PPC.
Effects
Consumers
Fall in purchasing power
Fall in standard of living
Fall in savings
Producers
Fall in investment (due to poor consumer confidence and poor consumer purchasing power indicated, leading to business outlook looking bad)
Fall in production: Fall in business outlook leads to scaling down
Government
Fall in consumer confidence: (due to fear of losing jobs, hence fall in AD and national output)
Fall in investor confidence: Lower consumer conf + purchasing power, hence poor business outlook. Investment falls, AD falls, national output falls.
Hinders economic growth: Prolonged unemployment erodes labour skills. Prolonged fall in investment leads to capital depreciation. Causes fall in quality of labour and capital, causing full employment to fall.
Worsens govt budget position: Income tax revenue falls, corporate tax revenue also falls. Expenditure increases due to unemployment benefits rising. Hence causing burden on budget.
