| Front | Back | | --- | --- | | A large number of full-time workers are forced to take part-time jobs due to an economic downturn. Predict the effect of this on (a) the official unemployment rate and (b) the actual utilization of human capital. |

(a) The official unemployment rate remains unchanged (part-time workers are counted as fully employed).
(b) Human capital utilization decreases (underemployment increases).

| | A government introduces a binding minimum wage ($W_{min} > W_e$) in a competitive labor market. Predict the effect on (a) labor supply, (b) labor demand, and (c) structural unemployment. |

(a) Labor supply increases (movement along the supply curve).
(b) Labor demand falls (due to higher production costs).
(c) Structural unemployment increases (creates a labor surplus).

| | A severe economic recession causes aggregate demand to shift inward from $AD_1$ to $AD_2$. Predict the effect on (a) real GDP, (b) the type of unemployment created, and (c) the feedback loop on consumer spending. |

(a) Real GDP falls, creating a deflationary gap.
(b) Cyclical unemployment increases.
(c) Consumer spending falls further due to lower household incomes, worsening the AD decline.

| | Discouraged workers stop actively looking for work during a prolonged economic depression. Predict the effect of this "hidden unemployment" on the official unemployment rate. | The official unemployment rate underestimates the true level of unemployment, as discouraged workers are no longer counted in the labor force. | | Why does the presence of a large informal sector in developing nations lead to an overestimation of the official unemployment rate? | Workers in unregulated, unregistered jobs lack formal contracts and are often counted as unemployed in official surveys, despite actually working. | | Why is cyclical unemployment excluded from the calculation of the natural rate of unemployment? | Cyclical unemployment only occurs when the economy operates below full employment (during a recessionary gap), whereas the natural rate persists at full employment. | | Contrast frictional and structural unemployment in terms of their primary causes. |

Frictional: Temporary transitions between jobs or entering the workforce.
Structural: Persistent mismatch between workers' skills and available jobs.

| | Explain how technological advancement can lead to structural unemployment. | Automation or new technology makes certain human skills obsolete, creating a mismatch between worker skills and the new jobs available. | | Explain the difference between workers and employers in the labor market supply-demand model. |

Workers are the suppliers of labor (represented by the supply curve).
Employers are the consumers of labor (represented by the demand curve).

| | Explain how high unemployment negatively impacts a government's fiscal budget. |

Lower tax revenues (less income tax and VAT collected).
Higher public spending on unemployment benefits and social services.

| | What is meant by "skill erosion" as a personal cost of long-term unemployment? | The loss of professional skills and work habits during prolonged joblessness, making the worker less employable in the future. | | A country experiences a sudden boom in winter tourism. Predict the effect of this seasonal shift on (a) seasonal unemployment in the tourism sector and (b) the natural rate of unemployment. |

(a) Seasonal unemployment in tourism falls.
(b) The natural rate of unemployment remains unchanged (as seasonal fluctuations are already factored into the long-run average).

| | The official unemployment rate is calculated as the number of unemployed people divided by the labor force (which consists of the employed plus the actively seeking work) multiplied by 100. | The official unemployment rate is calculated as the number of unemployed people divided by the labor force (which consists of the employed plus the actively seeking work) multiplied by 100. | | The natural rate of unemployment is mathematically defined as the sum of structural, seasonal, and frictional unemployment. | The natural rate of unemployment is mathematically defined as the sum of structural, seasonal, and frictional unemployment. | | Labor market rigidities that prevent wages from reaching market equilibrium include minimum wages, labor laws restricting wage cuts, and strong trade unions. | Labor market rigidities that prevent wages from reaching market equilibrium include minimum wages, labor laws restricting wage cuts, and strong trade unions. | | Underemployment occurs when workers are involuntarily working part-time or are overqualified for their current jobs. | Underemployment occurs when workers are involuntarily working part-time or are overqualified for their current jobs. | | Unemployment is officially defined as when people of working age are actively seeking and able to work, but are not employed. | Unemployment is officially defined as when people of working age are actively seeking and able to work, but are not employed. | |

Refer to the diagram. What economic gap is created by the shift from $AD_1$ to $AD_2$, and what type of unemployment does it cause?

A deflationary gap is created (output falls from $Y_p$ to $Y_2$).
It causes cyclical unemployment.

| |

Refer to the diagram. Identify the quantity represented by the horizontal distance between $Q_d$ and $Q_s$ at wage $W_{min}$, and state its economic classification.

The distance represents a labor surplus (excess supply of labor).
It is classified as structural unemployment.

| |

| AS | |

| cyclical unemployment | |

| AD1 | |

| AD2 | |

| W_e | |

| W_min | |

| Q_e | |

| Q_d | |

| D_for labour | |

| S_of labour |

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

IB Economics 3.3.3 Low Unemployment Flashcards

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

Flashcards for 3.3.3 Low Unemployment

Flashcards for 3.3.3 Low Unemployment - IB