Macroeconomics (ECON 1211) Lecturer: Dr B. M. Nowbutsing Topic: Unemployment

27.*1.Some Key TermsUnemployment rate:the percentage of the labour force without a job but registered as being willing and available for workLabour forcethose people holding a job or registered as being willing and available for workParticipation ratethe percentage of the population of working age declaring themselves to be in the labour force

27.*2.Unemployment in the UK, 1983-2003

Chart1

19.7206244864

17.6234979973

15.3063885267

10.941475827

5.9627329193

3.8882138518

3.6

2.8240740741

2.7322404372

3.3422459893

3.9387308534

4.4919786096

5.1157894737

5.7847812565

6.5607171964

6.8882659191

7.698381366

8.7548638132

9.1379310345

9.696506967

10.239036326

Rate

Year

%

Employment Rate (%) in Mauritius (1983-2003)

Sheet1

YearRate

198319.7206244864

198417.6234979973

198515.3063885267

198610.941475827

19875.9627329193

19883.8882138518

19893.6

19902.8240740741

19912.7322404372

19923.3422459893

19933.9387308534

19944.4919786096

19955.1157894737

19965.7847812565

19976.5607171964

19986.8882659191

19997.698381366

20008.7548638132

20019.1379310345

20029.696506967

200310.239036326

Sheet1

Rate

Year

%

Employment Rate (%) in Mauritius (1983-2003)

Sheet2

Sheet3

27.*3.Unemployment (%) in Selected Countries

27.*4.Labour Market FlowsIt is tempting to see the labour market in static termsWorkingUnemployedOut of the labour forcebut...

27.*5.Labour Market FlowsWorkingUnemployedOut of the labour force

27.*6.More on Labour Market FlowsIn 2003 unemployment in the Mauritius began at 54,000During the year:549,500 were in the labour force The Unemployment rate in Mauritius in 2007 is 9.4%

27.*7.The Composition of UnemploymentDifferent groups in society are more vulnerable to unemployment, varying by:agegenderregionethnic origin

27.*8.Types of UnemploymentFrictionalthe irreducible minimum level of unemployment in a dynamic societypeople between jobsthe almost unemployableStructuralunemployment arising from a mismatch of skills and job opportunities when the pattern of demand and production changesit takes time for sugar cane workers to retrain as international bankers

27.*8.Types of Unemployment (2)Demand-deficient unemploymentoccurs when output is below full capacityKeynesian unemployment occurs in the transitional period before wages and prices have fully adjustedClassical unemploymentcreated when the wage is deliberately maintained above the level at which labour supply and labour demand schedules intersect

27.*9.A modern View of UnemploymentA similar categorization is retained, but an important distinction is to be noted between:Voluntary unemploymentwhen a worker chooses not to accept a job at the going wage rateInvoluntary unemploymentwhen a worker would be willing to accept a job at the going wage but cannot get an offer.

27.*10.The Natural rate of UnemploymentNumber of workersReal wageLDLD: labour demandAJ is to the left of LFbecause some members of the labour force are between jobs, others are waiting for better offers.

27.*10.The Natural Rate of UnemploymentThe natural rate of unemployment is the rate of unemployment when the labour market is in equilibrium.This is entirely voluntary.It includes:frictional unemploymentstructural unemployment

27.*11.Classical UnemploymentNumber of workersReal wageLDLFAJw*N*N1To the extent that this unemployment reflects a conscious decision by unions to restrict employment,it is voluntary unemployment.

27.*12.Supply-Side economicsentails the use of microeconomic incentives to alter the level of full employmentthe level of potential outputthe natural rate of unemploymentIn the long run the performance of the economy can only be changed only by affecting the level of full employment and the corresponding level of potential output.

27.*13.Tax Cuts and UnemploymentNumber of workersReal wageLDLFAJEF is less than BC because of the relative slopes of LF & AJbut the differences may not be substantial.

27.*14.Other Supply-Side PoliciesTrade union reformreducing the power of trade unions may limit distortions in the labour marketOther labour supply policiestraining and retraining measuresimproving the efficiency of the labour marketsuch measures may affect frictional and structural unemploymentInvestmenthigher investment may increase the demand for labourmay be achieved via tax incentives or low interest rates

27.*15.HysteresisThe idea that a (short-run) fall in labour demand may lead to a permanent fall in labour supply

This could help to explain high and persistent unemployment in Europe in the 1980s

27.*15.Hysteresis (continued)Four channels:Insider-outsider distinctiononly those in work take part in wage bargaining & they protect their own positionsDiscouraged workerspeople stop looking for jobsSearch and mismatchfirms and workers get used to low searchcapital stocklow levels of investment in recession lead to permanently low capital stock levels

***Data relate to the claimant count. This SLIDE also appeared in Chapter 20.*Data are from Table 27-1 in the main text.*See Section 27-1 in the main text and Figure 27-2.This basic version of the Figure ignores the flows, which is how many people regard the labour market.*See Section 27-1 in the main text and Figure 27-2.The animation sequence builds up the pattern of the flows around the diagram to emphasise the dynamic nature of the labour market.*See Section 27-1 in the main text. Data are from Labour Market Trends, February 2000.*See Section 27-1 in the main text.****See Section 27-2 in the main text, and Figure 27-3.This is a reprise of the diagram introduced in the previous Chapter see Figure 26-2 in the main text.**See Section 27-2 in the main text, and Figure 27-3.*See Section 27-4 in the main text.*See Section 27-4 in the main text, and Figure 27-4.

**See Box 27-3 in the main text.*See Box 27-3 in the main text.If hysteresis occurs, the implication for policy is that periods of falling demand should be avoided if possible, as the effects may be long-lived.