ib economics: unemployment lesson 2. what are the main factors causing unemployment? what do you...
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IB Economics: Unemployment Lesson 2
What are the main factors causing UNEMPLOYMENT?What are the main factors causing UNEMPLOYMENT?
What do you understand by the term POOL of unemployment?
POOL of UNEMPLOYMENT
Class Task
Complete the diagram
Equilibrium unemploymentEquilibrium unemployment
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ADL
We
ASL
e
Qe
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ASL
ADL
We
W2
Disequilibrium unemploymentDisequilibrium unemployment
Q2 Q1
B A
What may cause real wages to be
too high and thus cause U?
Do you know a similar diagram
from Micro?
ADL 2
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ADL 1
W1
Q1Q2
W2
ASL
Demand-deficient unemploymentDemand-deficient unemployment
Q2QeO
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ASL
ADL
We
N
e d
Equilibrium unemploymentEquilibrium unemployment
According to the ILO definition
of unemployment are the people
represented between e and f
actually unemployed?
O
Wag
e ra
te
Period of search
t l
Wage rate offered (Wo)
Wage rate acceptable to worker (Wa)
Average duration of unemploymentAverage duration of unemployment
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ASL
ADL
We
W2
b a
e
N
c
Equilibriumunemployment
Disequilibriumunemployment
Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment
3 Types of Natural Unemployment3 Types of Natural Unemployment
Frictional unemployment Seasonal unemployment Structural unemployment
Each of these can be solved through interventionist and non-interventionist measures.
Structural unemployment is regarded as the worst because is long term in nature and costly to society, the causes can be split into; Changes in technology Poor international competitiveness Changes in consumer tastes
How can we solve STRUCTURAL U?How can we solve STRUCTURAL U?
It is key to try and increase the OCCUPATIONAL MOBILITY of labour
Changes to the education system – skills not jobs Adult retraining programmes Subsidies to firms to improve training Subsidies or tax breaks for people or firms that move
regions Support of apprenticeship programmes
What are the problems
associated with such policies?What type of policies are these?
How can we solve STRUCTURAL U?How can we solve STRUCTURAL U?
It is key to try and increase the OCCUPATIONAL MOBILITY of labour
Reductions in U benefit Reduction of legislation
What are the problems
associated with such policies?What type of policies are these?
Are demand side or supply side policies better?Are demand side or supply side policies better?
The policy MUST fit the problem if it is to succeed.
Will reductions in tax lead to increased spending? Education etc is very costly – what about the budget
deficit? Crowing out?
What about natural unemployment? Do you know what problem you are dealing with?
What are the problems
associated with such policies?What type of policies are these?
Physical crowding out Psychological crowding out
Loanable Funds Market Level of Investment
EVALUATION: What do
Keynesian and Classical
economists think about this?
Will an increases in Govt. spending lead to increases in AD? (HL)
Will an increases in Govt. spending lead to increases in AD? (HL)