UNEMPLOYMENT

REVISION SHEETS

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  • Created on: 24-03-12 16:44
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UNEMPLOYMENT
KEY TERMS
NATURAL RATE OF UNEMPLOYMENT: The unemployment that exists when AD for labour equals AS,
voluntary/frictional unemployment
FRICTIONAL UNEMPLOYMENT: Workers moving between jobs
STRUCTURAL UNEMPLOYMENT: Unemployment due to a change in the pattern of demand and production
EQUILLIBREUM UNEMPLOYMENT: When AD for labour equals AS of labour
GEOGRAPHICAL IMMOBILITY: The inability of a factor of production, usually labour, to move to where jobs exist
UNEMPLOYMENT TRAP: Where the income tax and benefit system reduces the net increase in income people can
expect from taking paid work. Therefore they would choose not to take a job
REPLACEMENT RATIO: Unemployment benefits divided by the income an unemployed worker could receive if in work
CASUAL UNEMPLOYMENT: A kind of frictional unemployment occurring when workers are laid off on a shortterm
basis
SEASONAL UNEMPLOYMENT: Casual unemployment resulting from seasonal fluctuations in demand
DEINDUSTRIALISATION: A fall in the proportion of national output accounted for by the manufacturing sector of the
economy
TECHNOLOGICAL UNEMPLOYMENT: Unemployment due to the introduction of labour saving technology
CYCLICAL/DEMAND DEFICIENT: Unemployment due to a lack of AD
INVOLUNTARY UNEMPLOYMENT: Workers willing to accept a job at the going rate but are not offered one
CLASSICAL/REAL WAGE UNEMPLOYMENT: Results from real wages being above their market clearing level, creating
an excess supply of labour
NATURAL RATE OF UNEMPLOYMENT: The unemployment that exists when AD for labour equals AS ­ voluntary,
frictional unemployment
HYSTERESIS: The tendency for a variable not to return to its original value or state when changed e.g. unemployment
can lead to higher unemployment
PHILLIPS CURVE: An economic model that shows a tradeoff between inflation and unemployment
STAGFLATION: The coexistence of high levels of inflation and unemployment
ADAPTIVE EXPECTATIONS: Where decisions about the future are based upon past information
NAIRU: The nonaccelerating inflation rate of unemployment, the level of unemployment at which there is no tendency
for inflation to accelerate
GLOBALISATION: Worldwide growth of multinational companies, international integration, the spread of free markets
and policies of liberalisation and free trade
KEY DIAGRAMS
Equilibrium unemployment
Cyclical unemployment
Classical unemployment
The Phillips curve
The expectations augmented Phillips curve
KEY NOTES
MEASURING UNEMPLOYMENT IN THE UK
Defined as the number of people of working age who don't have jobs but are actively seeking work at existing wage rates.
CLAIMANT COUNT:
Includes people who are eligible to claim Jobseekers benefits
Excludes those who don't met all eligible criteria and aren't included in unemployment count e.g. over 60's and
government training schemes ­ even though may have actively sought work.
LABOUR FORCE SURVERY:
Measure includes those people who have looked for work in the past month and start work in the next two
weeks.
Exceeds claimant count by over 500,000 recently.
Is the measure used for international comparison and most used measure in UK
EQUILIBREUM UNEMPLOYMENT:
In dynamic and evolving economy, some industries decline and some grow.

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Some workers may decide to take a break `between jobs' ­ frictional unemployment.
As new products are developed and consumer tastes change, firms labour requirements in terms of skill etc.
change leading to structural unemployment.
THESE EQUAL EQUILIBREUM UNEMPLOYMENT ­ WHERE AD for labour = AS for labour.
CAUSES AND TYPES OF UNEMPLOYMENT
FRICTIONAL UNEMPLOYMENT: Form of voluntary/transitional, caused by people moving between or searching for jobs.…read more

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Fiscal policy ­ to reflate economy by increasing own expenditure or deucing income tax rates.
Monetary policy ­ make credit more readily available.
Regional policy ­ to stimulate economic activity in those areas where it is above average ­ offer employment
subsidies or tax reductions to firms relocating in such areas.
SUPPLY SIDE: Aimed at reducing occupational immobility of labour and structural unemployment ­ seek to provide
skills and incentives to find work.…read more

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Any attempt to reduce unemployment below the NRU by stimulating AD is futile and governments will need to
tackle the supply side causes if they wish to reduce unemployment.
NAIRU
Nonaccelerating inflation rate of unemployment ­ rate of unemployment when rate of wage inflation is stable. Difficult to
observe and measure ­ fallen from 10% of labour force to 5% in last ten years. Equivalent to the concept of EQ
unemployment ­ consists of frictional and structural unemployment.…read more

Comments

davidsalter

This is a 4 page summary of what is needed for A2. It gives all the key terms. It can be read and studies itself or is a useful template for the kind of revision notes that students may find useful to create themselves.

Puneet Kaur

This is a great resource, wondering whether you have any more for the rest of Unit 4 A2 topics? I'd be grateful if you do! Thanks!X

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