A LOW LEVEL OF UNEMPLOYMENT 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