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Chapter 9: Macroeconomic Problems - Unemployment - Coggle Diagram
Chapter 9: Macroeconomic Problems - Unemployment
Unemployment: The number of people in the economy of legal working age, willing and able to work but unable to find suitable employment.
Impacts
Economic impact
Loss of output of goods and services
underutilised economic resources -> reduces long run growth potential of economy and production. high unemployment -> producing within PPC, welfare loss in society (not maximised), decrease in mSOL
Fiscal costs (affects govt)
fewer working -> fall in tax revenue -> govt in undesirable position. if they spend on unemployment benefits, risk budget deficit ->
scale back plans for spending on public goods
Loss of productive capacity
wastes scarce training resources for workers -> impact more severe with
long term unemployment
-> erosion of skills -> unable to join back workforce -> decrease in productivity -> inward shift of PPC/ decrease in LRAS
Social impact (SOL) (affects individuals)
nmSOL -> stress of finding a job/worsening health conditions -> protests (large mass of long-term unemployed people)
mSOL -> decline in real income/spending + less attractive for investors (esp with aging workforce)
Types and causes of unemployment
Cyclical
Due to
booms and slumps
in economic activity
(esp during economic recession) not enough demand, firms cut back on production -> less FOP -> AD drops
Structural
Due to
skills mismatch
- structural change in economy. Unskilled /in the wrong location for those jobs
Change in
demand
pattern (e.g shift from coal to other fuels, coal miners SU due to skills mismatch in other industries - sunrise-sunset industries)
Change in
supply
- tech unemployment/ relocation of industries
Frictional
Due to
imperfect information
- time lag before job seekers find the right job/firms find the right candidate (periodically unemployed)
Seasonal
Due to
seasonal fluctuations
in economic activity
Weather cycle/ traditions and customs (e.g farmers)
Real wage
Due to a
surplus of unemployment
Solutions