A succinct and complete summary of the Unemployment topic of AQA A-level Economics. Using only this material when revising for the Unemployment section of Paper 1 I was able to achieve an A* in Economics.
UNEMPLOYMENT
It is usually difficult to accurately measure unemployment. Some of those in employment might
claim unemployment related benefits, whilst some of the unemployed might not reveal this in a
survey
What is full employment?
Governments aim for full employment, which is where everybody of working age (excluding
students, retirees, etc.), who wants to work, can find employment at the current wage rates.
Full employment doesn’t mean everyone has a job — in most economies there will always be people
between jobs.
Why do governments aim for full employment?
Governments want full employment because this will maximise production and raise standards of
living in a country
What is unemployment?
When a person who is willing and able to work but can’t find a job.
What is the Labour force?
Working population; people between the ages of 16- 65
What is the unemployment rate?
The unemployment rate is the % share of the labour force that is willing and able to work but can’t
find a job, expressed as a percentage.
Unemployment across the EU
In February 2022, the euro area seasonally-adjusted unemployment rate was 6.8 %, down from 6.9 %
in January 2022 and from 8.2 % in February 2021.
, Voluntary and involuntary unemployment
Voluntary
Def: Voluntary unemployment is defined as a situation where the unemployed choose not to accept
a job at the going wage rate e.g. structural and frictional unemployment
Reasons for voluntary unemployment:
- Generous unemployment benefits, which make accepting a job less attractive.
- High marginal tax rates, which reduce effective take home pay.
- Unemployed hoping to find a job more suited to skills/qualifications.
- Some jobs are seen as ‘demeaning’ or too tedious. For example, fruit picking/security guard.
This can be reduced by cutting the level of unemployment benefits
- Tapers of towards the top as wages are higher and so voluntary unemployment falls (higher
wage incentive)
The Labour force includes everyone between the ages of 16-65. Supply for labour is all the people
who are willing and able to work however there will always be a proportion of the labour force who
are voluntarily unemployed and thus the AS for labour is less than the Labour force.
- Voluntary unemployment can be a cause of regional inequality
Involuntary
Def: Involuntary unemployment when workers would like to work at current wage rate but are
unable to find a job e.g. cyclical, real wage and seasonal
Causes : due to lack of demand and wages being kept above equilibrium by National Minimum Wage
and the trade unions (real wage unemployment) .
PPC, Unemployment and labour market failure
- When the economy is working within the PPC frontier there is an inefficient allocation of resources.
- The economy is working below full employment and inside the PPC because of involuntary
unemployment within the economy.
- This therefore leads to a labour market failure as it causes negative externalities such: government
spending on the job seekers allowance, increased crime and likely more unhealthy so increased cost
for the NHS.
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