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A LO W L E V E L O F U N E M P LOY M E N T
EMPLOYMENT
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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).
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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.
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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.
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DISTRIBUTION OF UNEMPLOYMENT
• Geographical disparities
• Age disparities
• Ethnic differences
• Gender disparities
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COSTS OF UNEMPLOYMENT
• Costs to self
• Cost to society• Cost to the economy as a whole
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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
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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
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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
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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
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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
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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
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CROWDING OUT
• When governments run budget deficits in order to stimulate an economy and reduce unemployment, crowding out occurs
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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