Unemployment

Last updated Sep 12, 2023 Edit Source

Definition Is the proportion of labour force who are willing and able to work but cannot find a job

Working age population:

• Part of the population that is of working age (>15) Labour force:
• The portion of the working age population who are either working, or are actively seeking work Participation rate:
• Proportion of the working age population who are either working, or are actively seeking work Underemployment:
• People who wish to work longer hours but can’t Disguised unemployment:
• Underemployment:
  • When people are employed less than they would like to Hidden unemployed:
• Discouraged workers:
  • Workers who choose not to participate in the labour force because previous efforts to find a job have been frustrated Non-accelerating inflation rate of unemployment (NAIRU):
• Unemployment that can not be reduced by expanding aggregate demand (full employment)

Unemployment rate = $\frac{Unemployed}{Labour force}*100$ Labour force participation rate = $\frac{Labour force}{Working\space age\space population}*100$

• Doesn’t account for hidden unemployment
• Doesn’t account for underemployment
• Excludes people with disabilities

• Follows the cyclical movements of the business trade cycle
• Derived from the demand of final goods and services
• Can get to 0%

• When there is a mismatch of available and required skills in a sector of the economy
• Causes:
  • Changes in technology
  • Changes in the demand for productive factors
  • Changes in the pattern of consumer demand
• Can be long term, especially for older workers
• Is always going to exist

• Unemployment that occurs due to the job search that occurs when in transition between different jobs
• Is most likely to be short term
• Is always going to exist

• Lower levels of AE, investment and business confidence
  • UE indicates that resources are under-utilised
  • There is a gap between actual GDP and potential GDP
• Higher welfare payments
  • Opportunity cost:
    • Potential expenditure on infrastructure, health or education
• Increased social problems
  • E.g. depression, violence, crime

• Affects different groups of people differently
  • Dependent on factors including age, health status and geographical location
• Increases income inequality

• When the economy is at its maximum production capacity
• Considered to exist when there is zero cyclical unemployment

• Structural UE + frictional UE
• Below 5%?

• Non-accelerating inflation rate of unemployment
• Is the lowest unemployment rate that can be sustained without causing wages growth and inflation to rise
• There will be spare capacity in an economy when aggregate demand for goods and services is less than the economy’s capacity to produce them
• Indicator of this spare capacity is the difference between the NAIRU and the unemployment rate - aka unemployment rate gap
• If the unemployment rate is higher than the NAIRU, the economy would not be at full employment and there would be downward pressure on inflation
• If the unemployment rate is lower than the NAIRU, the economy is operating above its full capacity, and there is upward pressure on inflation

• Economy is nearing or at full capacity
• Can lead to oversupply of labour
• Creates inflationary pressure

• Low unemployment is usually correlated with high inflationary
  • Low unemployment leads to inflationary pressure due to high levels of demand
• High unemployment is usually correlated with low inflation
• Can be represented by the Phillips Curve