Unemployment and the Labour Force: Their Affect on the Economy

2397 WordsMar 29, 201110 Pages
Unemployment and the Labour Force: Their Affect On the Economy This essay looks at how the level of unemployment (or employment) and labour force participation affect the economy as a whole. For the purpose of this essay I will concentrate more on unemployment, as this adversely affects the size of the labour force, whereas labour force participation does not affect the level of unemployment in the same manner. In reality, the two work hand in hand and it is vital that they both retain an aspect of stability for a successful economy. From a macroeconomic perspective, we can first look at the following equation: AE = C + I + G + X –M With the letters meaning Aggregate Expenditure, Consumption, Investment, Exports, and…show more content…
As illustrated below: [pic] When the Adl shifts to the left from curve Adl1 to Adl2 through less national output, at the same level of wages, the amount of employment will move from Q1 to Q2, resulting in unemployment for those between Q1 and Q2. the German economy suffered a period of recession after the Second World War, because many of the countries factories were damaged, it caused its Production Possibility Frontier Curve to shift inwards (to the left). This happened because Germany was unable to produce as much as before. Thus Germany’s unemployment increases during that period. 1 Equilibrium unemployment When the Adl and Asl meet there will be no unemployment, for it is in an equilibrium. However, if this were to occur, there would still be some forms of unemployment in the labour market. These are included in natural unemployment, such as frictional structural and seasonal unemployment. [pic] Even though the Adl and Asl curves meet equilibrium, there will also be a gap between the workforces, so unemployment will still exist. Parkin; Powell and Kent, (2003) affirms that Frictional unemployment describes a group of people who are either searching or who are in between jobs. For these people are willing and able to work yet to find a suitable job. This group also includes students who had recently graduated but had yet to find the right job for them. Thus they
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