IB ECONOMICS

Macroeconomic Goals:
Low Unemployment
Macroeconomic Variables and Objetives

The five main macro variables and objectives:

Variable Macroeconomic Objective
Economic Growth Steady rate of increase of national output

Employment Low level of unemployment

Price Stability Low and stable rate of inflation
External Stability Favourable balance of payments position
Income Distribution Equitable distribution on income

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Economics 2017 5 Year
Pablo J. Torrecilla
What is unemployment?

People of working age who are without work, available

for work, and actively seeking for employment.
employment.
(International Labor Organization - www.ilo.org
www.ilo.org))

Unemployment Rate:
Number of people who are unemployed expressed as
a percentage of the total labor force.
Labor force, or economically active population, is
NOT the whole population!
Of working age
Actively seeking for a job
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Economics 2017 5 Year
Pablo J. Torrecilla
Hidden unemployment

Long
Long--time unemployed
Those who have given up looking for a job

Underemployed
Part--time workers
Part
Over
Over--qualified
Lower--than
Lower than--existing skill requiring jobs
All these groups are not included in standard
unemployment statistics, although they at least
partially are unemployed.
Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
Distribution of unemployment

Geographical disparities
Regional variations in the same country
Age disparities
Ethnic differences
Minorities
Gender disparities
Different unemployment rates for men or women
Possible reasons: differences in education,
discrimination by employers, and other social
factors.
Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
Costs of unemployment

To the unemployed themselves

Less to nonexistent income
Lower standard of living
Dejection: stress, anxiety and depression

To society
Poverty, homelessness, higher rates of crime and
vandalism

To the economy as a whole

Loss of (potential) output and income
Opportunity cost of unemployment benefits.
Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
The labour market

Wage Rate (W)

Average (Real)

Equilibrium: ASL
The employment level
Aggregate Supply of Labour
(Total number of workers in an
economy willing and able to work
Equilibrium Wage

e at every given wage rate)

We
Aggregate Demand for Labour
(Demand for all labour involved in
producing an economys goods
and services)

ADL
Le Number of Workers (L)
Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
Disequilibrium unemployment

Disequilibrium unemployment
When there are conditions that prevent the labour
market from clearing, that is, from reaching market
equilibrium.

Classical or Real Wage unemployment

Unemployment caused by market distortions that
interfere with the working of the labour market.
e.g.: Trade unions or government intervention

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Economics 2017 5 Year
Pablo J. Torrecilla
Real--wage unemployment
Real

Wage Rate (W) Minimum wages represent

Average (Real)

a special kind of minimum

price, with the same
ASL
outcome as discussed
earlier. A government enforced Minimum

W1
a b Wage W1 above market
equilibrium wage (We) would
e cause the Aggregate Supply of
We labour to be greater than the
Aggregate Demand, resulting in a
unemployment of b-a

ADL
Le Number of Workers (L)
Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
Disequilibrium unemployment

Demand
Demand--deficient or cyclical unemployment
Related to the cyclical downturns in the economy.

As the economy moves into a period of slower

growth (or contracts, in a recession), Aggregate
Demand falls(consumers spend less). Firms
(Aggregate Supply)reduce production, which
likely leads to a fall in the demand for labour.
(Since wages the price for labour are inflexible, the
labour market is slow or directly fails to adapt to
changing conditions, and unemployment appears)
Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
Equilibrium unemployment
Natural unemployment
Unemployed people even under labour market equilibrium.

Frictional unemployment
Short term unemployment, in-
in-between jobs

Seasonal unemployment
Demand for certain labour varies on a seasonal basis.

Structural unemployment
Permanent fall in demand for a particular type of labour.
Technological obsolescence
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Foreign lower cost labour for certain industries Economics 2017 5 Year
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