chapter 22

© Edco 2012. Positive Economics

Chapter 22


It is the goal of every government of a modern economy to achieve a high level of employment because of the following reasons:

Higher tax take in the form of income taxes.

Less government expenditure on social welfare payments.

Employment


Full employment exists when everybody seeking work is employed at existing wage rates.

Full employment happens when a sustained period of economic growth occurs. As the economy grows, people earn more and they spend more on goods and services.

Full Employment


Consequences of Full Employment in Ireland

Increased standard of livingIncreased government tax revenuesReduced social welfare billIncreased aggregate demandIncreased investmentPossible labour shortagesInflationary pressuresPressure on the state’s infrastructureDeterioration/loss of services


Unemployment is the state of an individual looking for a paying job but not having one.

Frictional unemployment

Seasonal unemployment

Cyclical unemployment

Structural unemployment

Institutional unemployment

Unemployment


The Live Register is not an accurate measure of unemployment because it includes people who are:

Legally working part time and signing on part- time. For example:

– Those in receipt of Jobseeker’s Benefit/ Allowance, excluding systematic short-time workers and self-employed persons.

– Those who work in seasonal industries up to three days per week and in casual employment.

The Live Register


Engaged in the black/shadow economy.

Not seeking employment.

Signing on for PRSI credits and are already employed.

The Live Register cont.


The Quarterly National Household Survey (QNHS) is a better measure of unemployment in Ireland because it excludes the people who:

Legally sign on and work simultaneously.

Legally draw Unemployment Benefit/ Unemployment Assistance because they work three days per week or are in seasonal or casual labour.

Quarterly National Household Survey (QNHS)


Sign on but are not seeking employment or are not available for work.

The QNHS also includes those who are unemployed but are not in receipt of social welfare for other reasons.

Quarterly National Household Survey (QNHS)cont.


Causes of Unemployment

Economic recession/cyclical unemployment

Relocation of industry

Uncertainty about the future

Reliance on the construction sector/structural unemployment


What is the Impact of Unemployment on the Economy?Decrease in consumer demandFalling inflation or deflationEntrepreneurs hesitant to investMore government expenditure on social

welfareLower tax receiptsGreater taxation burden on the employed/

reducing the incentive to workIncreased social problemsWage increases not soughtReduced demand for imports


Strategies for Reducing Unemployment in Ireland

Decrease taxation

Sustain a low rate of corporation tax

Subsidise additional labour

Reduce costs for business

Capital investment by government


Strategies for Reducing Unemployment in Ireland cont.

Encourage new investment opportunities

Invest in education and training

Consumption of Irish goods

Encourage entrepreneurship

Encourage labour-intensive industries


Strategies for Reducing Unemployment in Ireland

Encourage new investment opportunities

Invest in education and training

Consumption of Irish goods

Encourage entrepreneurship

Encourage labour-intensive industries


What are the Effects of Job-sharing?

Fewer people on social welfare

Less absenteeism

Lower tax revenue intake due to lower marginal tax rates

Lower imports as a result of reduced incomes

Increased administration/training costs

Social problems decrease


Underemployment is a situation whereby a factor of production (e.g. labour), though not actually unemployed, is working below capacity.

Underemployment


Ireland has attracted many multinational companies in recent years for a variety of reasons:

Availability of skilled/English-speaking workforce

Low rates of taxation

Access to EU market/member of the euro

Availability of state incentives

Good industrial relations

Foreign Direct Investment (FDI) in Ireland


What are the Advantages of Lowering the Minimum Wage in Ireland?

Lower labour costs

Lower selling prices

Increased demand/protection of jobs

Investment stimulus

Reduced risk of relocation


What are the Disadvantages of Lowering the Minimum Wage in Ireland?

Reduced standard of living

Reduced aggregate demand/spending

Impact on general wage levels

Workers on lower incomes suffer the most

Discourage employment


The black/shadow economy describes all

economic activity that goes unrecorded in

the national income accounts.

The Black/Shadow Economy


Economic Effects of the Black/Shadow Economy in Ireland

Loss of tax revenue to the government

Decline in legitimate business activity/threat to jobs

Increased government expenditure on enforcement

Pressure on government services/finances

Increased crime levels

Standards of products/services


What strategies could the government undertake to discourage black/shadow

market activity?

Reduce direct taxation rates

Reduce indirect taxation

Better enforcement by Revenue Commissioners

Educate the public about the importance of tax revenue to the state

Simplification of the tax system/close alltax loopholes


Karl Marx (1818–83)

Theory of surplus value

As capitalists want to make more profit, eventually labour will be replaced, resulting in unemployment. However, this is at odds with the fact that only labour can generate profit.

Reduced demand as a result of unemployment

Two-tiered society

Labour theory of value

chapter 22

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