A LO W L E V E L O F U N E M P LOY M E N T

EMPLOYMENT

DEFINITIONS

• Unemployment: “People of working age who are without work, available for work, and actively seeking employment.” • Unemployment rate: the number of people who

are unemployed expressed as a percentage or the total labour force (not the whole population).

WHY IS HAVING A LOW LEVEL OF UNEMPLOYMENT NECESSARY?

• Working at full employment means that all factors of production are used at full capacity. Therefore AD and SRAS are both at full levels of efficiency. • In other words, it is a measure

of how productive an economy has the potential to be, based on how productive its workforce is.

HOW IS IT MEASURED?

• People who are registered as unemployed or people who demand unemployment benefits (as a percentage) • Survey and census’

Issues arise- Hidden unemployment, when people slip under the radar of the unemployment rate and thus are a cost to society.

Government funding usually reserved for the unemployed to keep them off the streets and away from crime.

DISTRIBUTION OF UNEMPLOYMENT

• Geographical disparities

• Age disparities

• Ethnic differences

• Gender disparities

COSTS OF UNEMPLOYMENT

• Costs to self

• Cost to society• Cost to the economy as a whole

DISEQUILIBRIUM UNEMPLOYMENT

• Real Wage Unemployment• Government imposed minimum wage and trade unions

interfere with the labor market • Producers fire more people because the cost of

maintaining a large labour force is too large

DISEQUILIBRIUM UNEMPLOYMENT PT. 2

• Demand-deficient Unemployment• Cyclical unemployment, occurs with regular downturns of

the economy • Lower demand for products leads to lower supply and

hence less need for labor

SOLUTIONS

• Real wage• Government would reduce or remove minimum wage or

the trade union’s power• Obvious side-effect are the lowering of living standards

• Demand-deficient• Government interaction through fiscal or monetary

policies in efforts to raise AD • Increased government spending to create artificial

employment• Lowers direct and indirect taxes to increase disposable

income

EQUILIBRIUM UNEMPLOYMENT

• AKA Natural Unemployment• Types: • Frictional: People in the labor force who are right out of

school or in between jobs• Seasonal: Products or services that depend on yearly

seasons• Structural: The worst type of unemployment, permanent

change in demand for a particular job • New technologies (ATM > Tellers) • Demand for labor might fall • Changes in consumer tastes

GRAPH

• Natural unemployment is when the number of job vacancies equals the number of people looking for employment• People are unwilling or

unable to take them

SOLUTIONS

• Frictional: reduce unemployment benefits to increase incentive to find jobs quicker• Seasonal: governments may promote people to

take jobs on the “off-season” • Interventionist Structural: • Education (training, apprentice programs)• Subsidies or tax breaks

• Market Based Structural: • Reduce unemployment benefits• Reduce regulations for hiring and firing

CROWDING OUT

• When governments run budget deficits in order to stimulate an economy and reduce unemployment, crowding out occurs

QUICK SUMMARY

• Unemployment has two main causes• Structural • Equilibrium/Disequilibrium

• Solutions• Market based vs interventionist solutions • Usually governments have to intervene

to solve for unemployment