Employment and unemployment
Unemployment types
- Measured by the claimant count (benefit claimants) and the labour force survey (a sample).
- Types:
- frictional — short spells between jobs,
- structural — skills no longer match jobs,
- cyclical — low demand in a recession,
- seasonal — work only at certain times.
Practice
The natural rate of unemployment is mainly:
The natural rate is the frictional + structural unemployment left when the labour market is balanced.
The Phillips curve
- The natural rate of unemployment is what's left when the labour market is balanced (frictional + structural) — it can't be removed by raising demand.
- The Phillips curve:
- short run — a trade-off: lower unemployment → higher inflation,
- long run — vertical at the natural rate (no lasting trade-off).
Practice
The short-run Phillips curve shows a trade-off between:
In the short run, lower unemployment comes with higher inflation (and vice versa).
Practice
In the long run, the Phillips curve is vertical at the natural rate of unemployment.
Once inflation is expected, there is no lasting trade-off — the long-run curve is vertical.
You've got it
Key idea
- types: frictional, structural, cyclical (recession), seasonal
- the natural rate = frictional + structural; demand alone can't cut it
- Phillips curve: short-run trade-off (unemployment ↔ inflation), long-run vertical