Unit 6 – Employment and Growth

One of the main benefits of strong economic growth in Ireland since the 1980s has been the large number of jobs created in the economy and the reduction in unemployment.The number of people in employment jumped from less than 1.2 million in 1993 to more than 2.0 million by 2006. The rate of unemployment dropped sharply.

The labour force, also known as the economically active population, comprises the employed population – including those in casual or informal employment – and the unemployed population.The labour force also expanded significantly over the same period: from 1.4 million in 1993 to 2.1 million by 2006.

One of the key drivers of labour force growth is the fact that more women are entering the labour force. The participation rate – defined by the ILO as the labour force as a percentage of the total population aged 15 years or more – rose from 56.5% in 1998 to 62.6% in 2006. However, the female participation rate climbed even faster, from 44% to 52.5% over the same period.

The economically inactive population (either not looking for or not available for work) includes students, the sick, retired persons and persons looking after the home or family.

SAMPLE EXAM QUESTION

Question:

Discuss the main types/causes of unemployment.

Answer:

Types/causes of unemployment

1. Cyclical

Cyclical unemployment is caused by a recession in the economy and will therefore vary with the business cycle. When the economy slows down aggregate demand falls. When this happens firms will begin to lay workers off as they don’t need to produce as much as they did previously. It is a serious form of unemployment as it tends to affect all industries. This type of unemployment is referred to as cyclical since recessions tend to occur in line with business cycles. A business cycle is the term which describes fluctuations in the rate of economic growth that take place in the economy. The highpoint in economic growth or expansion is called the peak of the economic cycle, while the lowest point in economic contraction is the trough. An economic contraction may become a recession – which is commonly considered to be a decline in real GDP over a sustained period, for example, two quarters or more. A deep or prolonged recession may be considered a depression.

2. Frictional

Frictional unemployment (also referred to as search unemployment) is caused by friction in the labour market. It is short-term unemployment which occurs as a result of people changing jobs. The better the economy is doing, the lower this type of unemployment is likely to be, since people will be able to find a job which suits them more easily if the economy is doing well. This form of unemployment is an inevitable consequence of labour mobility and the job-search process and is not considered to be incompatible with full employment.

3. Structural

Structural unemployment is caused by changes in the structure of the economy. It occurs when certain economic and industrial sectors contract as a result of a recession or when there are technological advances which reduce the need for workers.

4. Seasonal

Seasonal unemployment occurs at different times of the year due to certain industries requiring more workers at one time of the year than at other times. This occurs in industries such as construction and tourism. This type of unemployment is largely unavoidable.

5. Institutional

Institutional unemployment is caused by obstacles to the mobility of labour. This can occur when a closed-shop trade union practice exists or when mobility of labour is made difficult by immigration regulations or a lack of housing provision.

6. Disguised

Disguised unemployment occurs when there is a potential pool of labour which would enter the workforce if opportunities arose. For example, homemakers do not register as unemployed but might enter the workforce if opportunities arose. This type of unemployment also includes workers who are underemployed. For example, many family businesses may employ family members whose contribution to production is not significant and who would work elsewhere if opportunities arose.

 

STUDENT ACTIVITY

  1. Of the two measures of inflation, CPI and HICP, which do you feel better reflects the true inflation situation in Ireland, and why?
  2. Define Fiscal Policy?
  3. What are the three basic purposes of GDP?
  4. How has the economy changed since 1997? What, in your opinion is the most significant change?