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Economics Lecture 10

The lecture on unemployment covers its definition, types, and causes, including cyclical, structural, seasonal, frictional, and classical unemployment. It discusses the natural rate of unemployment, differentiating between voluntary and involuntary unemployment, and outlines government policies aimed at reducing unemployment through demand and supply-side strategies. Additionally, the lecture highlights the economic and social costs associated with unemployment.

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Economics Lecture 10

The lecture on unemployment covers its definition, types, and causes, including cyclical, structural, seasonal, frictional, and classical unemployment. It discusses the natural rate of unemployment, differentiating between voluntary and involuntary unemployment, and outlines government policies aimed at reducing unemployment through demand and supply-side strategies. Additionally, the lecture highlights the economic and social costs associated with unemployment.

Uploaded by

tyuiookhhiooo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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5-12-2024

ECONOMICS
LECTURE 10
Unemployment

MAHMOUD HANY
Contents
• Introduction to unemployment
• Causes of unemployment
• Voluntary and involuntary unemployment
• Natural rate of unemployment
AGENDA • Government policies to reduce
unemployment
• Costs of unemployment
N.B: There are several graphs in the readings for
this lecture, you may skip them if you wish.

2
INTRODUCTION TO UNEMPLOYMENT

3
INTRODUCTION TO UNEMPLOYMENT
• One of the central objectives for any government is to reduce unemployment.
• Labor force: it is the number of people who are available for work whether they are
employed or not. (employed + unemployed)
• Unemployment rate: The number of people who are looking for work and cannot find a
job as a percentage of the labor force.
• To be considered an unemployed you have to be:
• An adult (over 16 years).
• Non-institutionalized (e.g. not a prisoner).
• Actively searching for work.
• Is unemployment rate a good indicator in terms of quality?
4
CAUSES OF UNEMPLOYMENT / TYPES OF
UNEMPLOYMENT
• Cyclical unemployment: Occurs when demand is low throughout the economy. If
demand for goods and services is low then there is less demand for employees and
accordingly more unemployment.

• Structural unemployment: Occurs when the structure of economy changes.


• Example: transferring business to another country because its cheaper or more efficient.
• Example: Your job becomes obsolete because of new technology.

5
CAN YOU EVALUATE THE EFFECT OF THE
FOLLOWING EVENTS ON
UNEMPLOYMENT

Climate change Artificial Intelligence (AI)

6
CAUSES OF UNEMPLOYMENT / TYPES OF
UNEMPLOYMENT
• Seasonal unemployment: occurs in seasonal industries. People working in such
industries find themselves unemployed after the season ends.
• Example: employees in resorts that work during summer or winter only.
• Example: Workers in farms that only grows in certain seasons.
• Frictional unemployment: occurs when people have left a job and still looking for
another one. Such period is called frictional unemployment period.
• Classical (real wage) unemployment occurs when real wages are too high there will
be excess supply of labor. The reasons why real wages are too high is that employees
might demand high wages even if prices are falling or if trade unions push for higher
wages.

7
VOLUNTARY AND INVOLUNTARY UNEMPLOYMENT

• Voluntary unemployment: People who are in the labor force and are looking for work
but are unwilling to accept jobs at the given wages.
• Involuntary unemployment: People who are in the labor force and are ready to work at
the real wage but cannot find jobs (lack of jobs available).

8
THE NATURAL RATE OF UNEMPLOYMENT

• Even if the economy is in equilibrium, at full employment, there will still be voluntary
employment. It represents the level of employment when all those who are willing
and able to work at the given wage rate are working.
• There will always be unemployment because of people changing between jobs or
have no intention of working at the moment.
• Some unemployment is inevitable!

9
GOVERNMENT POLICIES TO REDUCE
UNEMPLOYMENT
Demand side policies
• The government can try to boost demand in the economy to increase the numbers of jobs
available this can happen through:
• Cutting taxes
• Increasing government spending
• Reducing interest rates

Supply side policies


• The government in order to reduce voluntary unemployment can:
• Invest in training
• Making changes to the benefits system to force people to take jobs.
• Reducing the tax wedge.
• Providing more information to employees regarding jobs available.

10
COSTS OF UNEMPLOYMENT
• Unemployment means that economy is not fully utilizing its resource. (producing below its
PPF).
• High unemployment means less income ability to purchase goods and services and would
lead to less people employed more and more unemployment (multiplier effect).
• Social problems and crime.
• The government has to spend more on benefits such as unemployment benefits.
• Less income for the government from taxation because people are neither earning nor
spending.
• Investment in long term projects by firms is jeopardized.
• The fear of unemployment can lead to less consumer spending.

11
HOW CAN LAW AFFECT UNEMPLOYMENT

• Do you think that legal rules can have an impact on unemployment?


• What do you think would be the impact of legal rules:
• Setting a minimum wage.
• Unemployment insurance.
• Rules regarding the flexibility of hiring and firing.

12
THANK YOU

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