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Not all unemployment is
equally bad
· Frictional and structural are "normal" ­ there is nothing
we can do about them in the short term
· These two form "natural rate of unemployment" ­ full
employment is not 100%; it's more like 90-95%…read more

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Why do we not like
· Reduces our economic growth and output
· Higher cost for government
· Lower standard of living (family breakdown, crime &
substance abuse)
· Unemployment creates more unemployment: people
without jobs don't spend as much AD down SRAS
down employment down unemployment made even
worse by the multiplier effect. So if AD is lower by £300
million in one year due to unemployment and the
multiplier is 1.5, next year AD will fall by £450 million
unemployment increases...…read more

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Causes of unemployment
· Current high unemployment and low demand cyclical
· Bad expectations cyclical
· Technological advance structural
· Changing patterns of trade structural
· Geographical immobility
· Taxes that are too high
· High interest rates ­ fewer people can afford to borrow money to
start businesses and employ
· Shocks: e.g. oil crisis
· Lack of democracy (corruption) and widespread discrimination
· Lack of capital (including human capital) ­ a poor country without a
stock market / advanced banking system, little savings & not
enough equipment ­ can't employ many people…read more

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Measuring unemployment
· Claimant count ­ count all those who came to Job Centre
Plus to apply for benefits
· Underreports unemployment ­ people with savings won't
get benefits so won't go there
· Labour Force Survey ­ sample 10,000 home phone
numbers ­ a few issues:
· Not everybody has a home phone number
· Those out of work for longer than 13 weeks are not counted
as unemployed but discouraged workers…read more

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Fighting unemployment
· Structural ­ Education and training (long term)
· HS2 (or similar infrastructure investment)
geographical immobility reduced
· Run public projects, e.g. Olympics
· Could we restrict immigration?
From the EU, no. From overseas, yes.
· Low taxes encourage business owners to expand the
"trickle-down effect"
· Fight discrimination and improve technology so our
workers are more productive…read more


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