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Economics: Unemployment

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JY Chua

on 12 April 2013

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Transcript of Economics: Unemployment

Voluntary UnN Discouraged Workers Limitations of Unemployment
Figures Involuntary UnN Occurs when people who are seeking jobs are prevailing wage rates are unable to find jobs Causes of Invol. UnN 1. Real Wage Unemployment Vitz <3 Jiaying UNEMPLOYMENT C: People of working age Unable to find a job Actively Seeking Employment ( ≥above 15)
No. of unemployment
Labour Force X 100%

Labour Force
Working-age Population Labour Force Participation Rate = Unemployment Rate = X 100% Underemployed Workers Dishonest Workers Able and willing to work Types & Causes of Unemployment Involuntary Voluntary Real wage

Demand deficient (cyclical) Frictional


Seasonal D s L L W 1 We Real Wage Rate No. of Workers } excess labour Sticky wages Caused by Trade Unions' successful bargaining & Minimum wage laws W W 1 0 Loss in jobs People induced to work due to higher wage but have no jobs S D L L } UnN Fails to account for: Causes of Involuntary UnN 2. Demand Deficient (Cyclical) Occurs when AD D L Due to economic recession GPL RNI AD1 AD0 AS Output Gap Wage Rate No. of Workers S D D L L L Sticky Wages! demand deficient unN W Wage Contracts
Employers do not wish to affect employee morale
Fear of the best people leaving Occurs when workers choose not to accept a job at prevailing wage rate May be frictional, structural or seasonal No. of people in labour force S L D L Real Wage Rate No. of workers } natural rate of unemployment Able but unwilling to work at W W Gap decreases at higher wages:
People are more willing to accept jobs At full employment, there will still be some voluntary unemployment Causes of Voluntary Employment 1. Frictional (Search) Takes time for people to find jobs Caused by: 1. Imperfect Information: Jobless are unaware of available jobs;
Employers are unaware of available labour 2. Incentives Problems Disincentive to work if tax system reduces net increase in disposable income Is Frictional Unemployment always bad? Results in better match of skills to job types People are also choosy about jobs Efficient allocation of resources Productivity Can be reduced in time When the economy does well, this type of unemployment is reduced
(people find suitable jobs more quickly Seasonal Unemployment Structural Unemployment Other reasons Demise of declining industries Demise of declining industries Change in method of production Reasons Mismatch between industrial requirements & workers' skill sets Due to fluctuations in demand for certain types of labour throughout the year Agriculture seasons Due to new technology & production techniques: Same level of output can be produced with less workers Some jobs & skills become obsolete Climatic recreational activities skiing, water sports However, it can also create new jobs! These sectors become idle and unemployment arises for the time period due to low demand of that service --> low demand of that labour Workers are needed to operate the new machinery Example: ATM tellers 1. Loss of comparative advantage Countries cannot compete effectively in Production with developing countries due to labour cost differences countries may restructure economy to develop new industries Workers in declining industries lack skills to move on to the new industries 2. Change in demand patterns due to changes in consumer tastes Example: Unemployed workers from typewriter factories Impacts of Globalisation on Unemployment Geographical immobility
Cyclical unemployment Integrated Markets Transfer of Technology to emerging economies Off-shore outsourcing & Relocating Effects of Unemployment Reduced transportation costs
Reduction in trade barriers } integrated markets Unemployment is linked to slower growth slower rate of consumption & production Environmental gains (lower pressure on resources & pollution) Loss of income Material SOL Government: Tax revenue Expenditure running of welfare offices unemployment benefits Productive Inefficiency: wasted & unused labor resources May cause social instability Allocation of resources: leads to better job matches which utilizes skills & knowledge of workers more efficiently Emerging economies produce value-added goods world production Requires much skill to operate the new technology used Some workers lack such skills accessibility of world markets Structural unemployment } Occurs as firms can do so at cheaper costs! Easily done due to ICT and ease in transportation Domestic workers face
structural unemployment variety of employment opportunities increases at various levels of education

possible decrease in unN rate worldwide However: in times of recession... economies dependent on external demand for growth = more vulnerable to external evenst eg Singapore 2009 (US financial crisis) Free mobility of FOPs :* Labour mobility from developed to developing economies Aqcuire new skills and capital goods Comparative advantage shifts towards knowledge-based industries requiring the expertise of those from developed economies. Developed economy workers will be lured to work in these developing economies in hopes of being granted better remuneration and employment terms and if cost of living is lower in these countries. But low skilled workers in the less developed countries will find themselves redundant to the economy eg agricultural sector --> unN for them Conversely... if workers from developing countries move to developed countries for work, wages will decrease as SS increases, locals are less willing to work these jobs, become voluntarily unN. eg Singapore cleaners end/thank you DEFINING
UNEMPLOYMENT Unemployment Rate = No. of unemployed Labour Force X 100%
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