• Labour lacking skills and training necessary to fill the jobs that are in demand • It’s the difference between the characteristics of unemployed workers and the characteristic of the job in demand
Problem with unemployment rate estimates • Some workers are underemployed because they are unable to find employment that utilizes their training, skills and talents fully. • Part time employment is another form of underemployment.
THE COSTS OF UNEMPLOYMENT • The most obvious cost of unemployment is to the unemployed themselves. • The longer people are unemployed, the more dispirited they may become. Their self - esteem is likely to fall, and they are more likely to succumb to stress - related illness. • Beyond the unemployed themselves, there are the costs to their family and friends. Personal relations can become strained, and there may be an increase in domestic violence and the number of families splitting up. • Then there are the broader costs to the economy. Unemployment represents a loss of output. In other words, actual output is below potential output • Finally, there is some evidence that higher unemployment leads to increased crime and vandalism. This obviously imposes a cost on the sufferers
Unemployment and the labour market • We now turn to the causes of unemployment. These causes fall into two broad categories: equilibrium unemployment and disequilibrium unemployment . • We look at the aggregate demand for labour and aggregate supply of labour : that is, the total demand and supply of labour in the whole economy.
Disequilibrium unemployment • The aggregate supply of labour curve (ASL) shows the number of workers willing to accept jobs at each wage rate • The aggregate demand for labour curve (ADL) slopes downwards. The higher the wage rate, the more will firms attempt to economise on labour and to substitute other factors of production for labour • The labour market is in equilibrium at a wage of We – where the demand for labour equals the supply
• For disequilibrium unemployment to occur, two conditions must hold: 1. The aggregate supply of labour must exceed the aggregate demand. 2. There must be a ‘stickiness’ in wages. In other words, the wage rate must not immediately fall to We, the market clearing wage
Equilibrium unemployment • The curve N shows the total number in the labour force. The horizontal difference between it and the aggregate supply of labour curve (ASL) represents the excess of people looking for work over those actually willing to accept jobs • Qe represents the equilibrium level of employment and the distance d−e represents the equilibrium level of unemployment. This is sometimes known as the natural level of unemployment
AGGREGATE DEMAND CURVE • It is the total level of spending in the economy and consists of four elements: consumer spending (C), private investment (I), government expenditure on goods and services (G) and expenditure on exports (X) less expenditure on imports (M). Thus: 𝑨? = ? + 𝑮 + 𝑰 + ( 𝑿 − 𝑴 ) • IT IS THE SUM TOTAL OF ALL PLANNED EXPENDITURE IN THE ECONOMY
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- Spring '20
- Dr. ASRAVOR