Employment/ Unemployment (Copy)
9.3 Employment / Unemployment
9.3.1 Definition of Full Employment
- Situation where all available labour resources are being used efficiently.
- Some unemployment still exists (frictional/structural) — zero cyclical unemployment.
9.3.2 Equilibrium and Disequilibrium Unemployment
| Type | Definition | Example |
|---|---|---|
| Equilibrium | Unemployment at which labour supply = labour demand (at prevailing wage). | Structural, frictional unemployment. |
| Disequilibrium | Unemployment due to wages being above market-clearing level or insufficient demand. | Real-wage unemployment, cyclical unemployment. |
Hysteresis: Prolonged high unemployment can increase the natural rate due to skill loss and discouragement.
9.3.3 Voluntary and Involuntary Unemployment
| Type | Definition | Example |
|---|---|---|
| Voluntary | People choose not to work at current wage. | Jobseekers waiting for better offers. |
| Involuntary | People willing to work at current wage but cannot find jobs. | Layoffs during recession. |
9.3.4 Natural Rate of Unemployment (NRU)
Definition: Rate of unemployment consistent with stable inflation (occurs at full employment).
Determinants:
- Labour market flexibility.
- Skills and education levels.
- Unemployment benefits.
- Demographics.
- Mobility of labour.
Policy Implications:
- Cannot be reduced by demand-side policies without causing inflation.
- Requires supply-side measures to lower NRU.
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9.3.5 Patterns and Trends in (Un)employment
- Fluctuate with business cycle.
- Sectoral shifts: Movement from manufacturing to services.
- Demographic differences: Youth, women, low-skilled often face higher unemployment.
- Globalisation, automation affecting job structures.
9.3.6 Mobility of Labour
Forms:
- Geographical: Ability to move between locations for work.
- Occupational: Ability to switch between different jobs/industries.
Factors Affecting Mobility:
- Skills and qualifications.
- Housing costs and availability.
- Cultural/language barriers.
- Transport infrastructure.
- Family and social ties.
9.3.7 Policies to Reduce Unemployment and Their Effectiveness
| Policy Type | Example | Effectiveness |
|---|---|---|
| Demand-side | Fiscal stimulus, lower interest rates | Good short-term fix for cyclical unemployment; risk of inflation. |
| Supply-side | Training, education, reducing benefits | Effective for structural unemployment; takes time. |
| Labour market reforms | Reducing union power, improving job matching services | Can increase flexibility but may reduce job security. |
| Regional policies | Investment in high-unemployment areas | Helps geographical immobility; costly. |