1. Unemployment

2. Aims and Objectives Aim: To understand employment policy Objectives:
Define different types of unemployment
Analyse the inflation/unemployment trade off
Evaluate demand and supply side unemployment policies

3. Starter Re-call the different types of unemployment in an economy.
Draw the diagram to show unemployment
Draw the diagram to show cyclical unemployment

4. Trade Off Between Employment and InflationAS FE
PRICE LEVEL
REAL GDP AD
AD1
AD2
Cant have full employment without inflation occurring, especially beyond AD1.
However the level that represents FE may fall over time, meaning that unemployment can fall without inflation occuring.

5. Policy Conflict
Low Inflation
Full Employment

6. Demand Side Causes of Unemployment
Cyclical unemployment
Pt A occurs as level of AD below the FE level, experiencing a negative output gap
Remedy = Increase AD maybe by reducing interest rate
At AD2 low unemployment and positive output gap
Danger of high inflation
Remedy = increase interest rate AS FE
PRICE LEVEL
REAL GDP AD
AD1
AD2
AD2
LRAS P1
AD1 Y1 Y2
PRICE LEVEL
REAL GDP A

7. AD Affects UnemploymentI G
X-M

8. Supply Side Causes of Unemployment
Frictional unemployment
Structural unemployment

9. Supply Side Causes of Unemployment
PRICE LEVEL
Equilibrium pt A, OP, OE
Structural unemployment occurs SRAS – SRAS1
Reduced level of output OF
Higher Prices OP1
Decreases in capital equipment shift the LRAS left – potential output fallen.
LRAS1
LRAS
SRAS1 P1 B
SRAS P A AD F E
REAL GDP

10. Evaluation: Government Intervention
You are part of the Thatcher government, tasked with reducing unemployment, which is ever rising due to the voluntary/ frictional/ structural unemployment in the economy.
Decide on supply and demand side policies which could be used to combat it!

11. Demand Side & Supply Side Policies
Fiscal Policy
Make Credit More Available
Use regional policy to combat structural unemployment
Offer firms subsidies to hire workers in depressed regions
Supply Side
Improved education
Increase funding on vocational training
Subsidise housing in cities where accommodation is expensive
Provide tax breaks and tax credits

12. Explanation of How Affects Employment
Demand Side Policy
Explanation of How Affects Employment
Evaluation of Policy: To what extent does the policy affect employment?
Fiscal Policy
Make Credit More Available
Use regional policy to combat structural unemployment
Offer firms subsidies to hire workers in depressed regions

13. Explanation of How Affects Employment
Supply Side Policy
Explanation of How Affects Employment
Evaluation of Policy: To what extent does the policy affect employment?
Improved Education
Increase funding on vocational training
Subsidise housing in cities where accommodation is expensive
Provide tax breaks and tax credits