20.

Unemployment Definition 1) According to International Labour Organization (ILO) : People of working age who are without work, available for work and actively seeking for employment. 2) Unemployment rate : The number of people who are unemployed expressed as a percentage of the total labour force. Distribution of unemployment h Geographical disparities Most countries do have some regions that are prosperous than others Age disparities -Unemployment rates in <25 age group are higher than national averages in many countries

Main factors affecting the Level of Unemployment Factors causes the level of unemployment to rise Inflows (those becoming unemployed) -people who have lost their jobs -people who have resigned -people who have left school but not yet found work -people who are trying to return to work after having left it -people who are immigrated into country but not yet found work

POOL OF UNEMPLOYMENT

Ethic disparities Co -ethnic minorities suffer from higher unemployment rates -Reasons : Differences in educational opportunities, attitude, prejudices of employers Costs of unemployment unemployed people - receive less income (unemployment benefits) - lower standard of living - lead to stress, anxiety and depression - erosion to mental health > relationship breakdown > higher level of suicide

Gender disparities -Unemployment rates among women are higher -Reasons : Differences in education, discriminations by employers, other social factors

Factors causes the level of unemployment to fall

Outflows (those no longer considered to be unemployed) -people who find jobs -people who retire -people who back to education -people who choose to stay at home to look after children -people who are emigrated to other countries -people who give up search for jobs

Average (Real) Wage Rate

ASL

Society -poverty - high rates of crime and vandalism -increased gang activities Economy (government) -opportunity costs to the government to spend on unemployment benefits - earn less indirect taxes -may have to spend money to solve the social problems

We

ADL

Qe

Number of Workers

Equilibrium in the labour market

CA EG RIES OF UNEMPLOYMEN

Disequilib iu


Equilib iu


Disequilib iu


ISEQUILIBRIUM UNEMPL YMEN

Re l Wage


De and-defi ient/ y li al
    

Reasons for stickiness : y firms realise that paying lower wages will lead to discontent -reduce motivation among workers -lower workers productivity y labour constraint & trade union

Solutions -using demand side policies 1) Monetary policy 2) Fiscal Policy

EQUILIBRIUM UNEMPL YMEN (NA URAL UNEMPL YMEN

a e Rate

ASL

LF

1 some unemployment are caused by trade unions and government minimum wages interfering with the labour market. 2 trade unions negotiate wages that are higher than the equilibrium and a minimum wage is set above the equilibrium 3) higher enforced wage (W 1) caused ASL is greater than AD L and unemployment of a-b is created
 

Ave a e Real

ADL

m e

es

Solutions -reduce the ability of unions to negotiate higher wages -minimum wage should be reduced or abolished Consequen es -difficult to reduce union power -reduce income and living standards of those who are earning low wages -creating greater inequality of income.


-As an economy moves into slower growth period, AD tends to fall -Leads to a fall in labour demand as firms cut back on production -assume the economy is initially operating at a high level of economic activities at Y 1 in Figure (a) -If labour market functioned perfectly, average real wage would fall to W 1 -while workers wages can easily increase, it is likely that real wage will fall (sticky downwards)

y y

at any given wage rate there will be more people loo ing for jobs than those who are actually willing and/or able to take the jobs thus at W e Qe people are willing and able to take jobs yet a -b unemployment e ists

MAIN TYPES OF EQUILIBIRUM UNEMPLOYMENT

Seasonal

F i tional
 

St u tu al
  

Frictional Unemployment - short term unemployment that occurs when people are in between jobs, as they have left education and are waiting to take up their first job. - it is natural for people to leave jobs in the hopes of finding better ones - Solutions y lower unemployment benefits to encourage unemployed workers to take available jobs y improving the flow of information from potential employers to people looking for jobs Seasonal Unemployment -demand for certain workers falls at certain times of the year -Examples : farmers, construction workers, tourism industry -Solutions y Encourage people to take different jobs in their off season y reduce unemployment benefits y greater flow of information

-disadvantages : interventionist policies y high opportunity costs y effective in long term -Solutions : (2) Market oriented/ free market policies y reduce unemployment benefits y reduce/remove legislation that businesses must follow in hiring, firing and employment practices. -disadvantages : Market oriented/ free market policies y people who lost their unemployment benefits will have lower living standards y worse working condition for labours.

Structural Unemployment -occurs as a result of the changing structure of an economy. -occurs when there is a permanent fall in the demand of particular type of labour. -Causes : y new technologies can make certain type of labour unnecessary. automation reduces the need for labour y lower cost labour in foreign countries y changes in consumer taste -Solutions : (1) interventionist polices y education system that trains people to be more occupationally flexible. y spending on adult retraining programes to help people ac uire necessary skills to match available jobs. y government can give subsidies to firms that provide training for workers y If jobs exist in other part of the country, government might provide subsidies/ tax breaks to encourage people to move. y government can support apprenticeship programmes.


OTHER GOV POLICIES TO AFFECT DISTRIBUTION OF INCOME DISTRIBUTION OF INCOME TAXATION governmentsponsored training schemes Indi e t Taxes 1) Avoidable 2)also known as expenditure taxes/ consumption based taxes 3) Consumers buy goods and pay the taxes to the sellers.
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minimum wage policy

firms pay social security benefits to workers

Di e t Taxes 1) Unavoidable 2)imposed on people s income or wealth : - employment income - interest on saving - dividens from ownership/shares 3) Charged by : - directly from employers - annual tax return
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help workers to find gainful employment 7 raise living standards

redistribute income from firms to workers

to cover : -medical insurance -pensions

CATEGORIES OF TAXES

Progressive tax

Regressive tax

Proportional tax

TRANSFER PAYMENTS -not included in national income accounting - to improve living standards -examples : 1) pension 3) unemployment benefits 2) child support assistance 4) payments to disabled people 5) subsidies to producers EVALUATION OF REDISTRIBUTION OF INCOME POLICIES y If firms have to pay insurance and social security costs for workers  encourage firms to hire fewer workers, thus contributing to unemployment y Higher taxes in a country  discourage entrepreneurs to leave country in search of more favourable tax climates. y higher taxes : -ve effects on overall growth in the economy disincentive effect lower taxes : increase output benefits people

Progressive Taxes -Redistribute income for higher to lower income earners. -higher income, higher tax percentage -tax deduction reduces tax percentage

Regressive Taxes -proportion of income paid in tax falls as income rises. - good source of government revenue

Proportional Taxes - proportion of income paid in tax is constant for all income. - reasons : 1) huge complexity of most tax systems 2) disincentive effect of taxes on working high rate of taxes discourages ppl from working harder -supply side policies encourage to work harder