Encore Presentation on Unemployment
Dec 21, 2015
Encore Presentation on Unemployment
Additional types of unemployment
You remember the three types we talked about last time right Rubber Duck Boy?
What are they young man?
Unemployment when we are not at
potential GDPThe three types of
unemployment we discussed last class all
exist even if the economy is at the full employment level of GDP. But what kinds of unemployment exists when we are in a
recessionary gap?
Real Wage Unemployment
This type of unemployment occurs when there is a
disequilibrium in the labour market. It appears when the actual real wage is greater than the equilibrium real
wage giving rise to a labour surplus.
How can this happen Ms. Yeung?
Real Wage Unemployment
Artificially high wage rates leads to a decrease in SRAS
How to fix this problem?
The artificially high wage rates can be reduced if we destroy unions and lower or eliminate minimum wage….but you can’t force firms to pay workers less….but some would argue that SRAS would shift to the right
Economic Cat Fight
During the Great Depression, classical
economists argued the high unemployment rate was caused by artificially high wages. Keynes of course, thought they
were ignorant
Keynes’ Explanation
Keynes argued that there was insufficient aggregate demand in the economy, caused by pessimistic
business expectations which led to a virtual standstill in private investment. When the animal spirits are quiet,
so is the economy.
Cyclical Unemployment
Keynes’ argument against real wage unemployment led to the idea of cyclical
unemployment, aka demand-deficient
unemployment….but some still argue that
unemployment is caused by high wages
Cyclical Unemployment
Cyclical Unemployment occurs when the economy is in a recessionary gap caused by a decline in AD. Eliminate the recessionary gap and you
eliminate Cyclical Unemployment, leaving just
the other three types of unemployment.
Keynesian solution to Cyclical
Unemployment
Keynesian solution to Cyclical Unemployment from the Neoclassical side
So what types of unemployment can we have during a recessionary gap BS man?
So what types of unemployment can we have at full employment Head Boy?
What do we know about unemployment if we are in an inflationary gap Mung Lok?
Government Policies
So what can the government do to reduce
the natural rate of unemployment?
Express your answer with reference to either the AD, SRAS or LRAS
curves.
Government Policies
So what can the government do to reduce
real wage unemployment?
Express your answer with reference to either the AD, SRAS or LRAS
curves.
Government Policies
So what can the government do to reduce cyclical unemployment?
Express your answer with reference to either the AD, SRAS or LRAS
curves.
Lucky people who didn’t get their photos shown
Let’s not forget
Last but not least