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Chapter 22 © Edco 2012. Positive Economics Employment It is the goal of every government of a modern economy to achieve a high level of employment because of the following reasons: Higher tax take in the form of income taxes. Less government expenditure on social welfare payments. © Edco 2012. Positive Economics Full Employment Full employment exists when everybody seeking work is employed at existing wage rates. Full employment happens when a sustained period of economic growth occurs. As the economy grows, people earn more and they spend more on goods and services. © Edco 2012. Positive Economics Consequences of Full Employment in Ireland Increased standard of living Increased government tax revenues Reduced social welfare bill Increased aggregate demand Increased investment Possible labour shortages Inflationary pressures Pressure on the state’s infrastructure Deterioration/loss of services © Edco 2012. Positive Economics Unemployment Unemployment is the state of an individual looking for a paying job but not having one. Frictional unemployment Seasonal unemployment Cyclical unemployment Structural unemployment Institutional unemployment © Edco 2012. Positive Economics The Live Register The Live Register is not an accurate measure of unemployment because it includes people who are: Legally working part time and signing on parttime. For example: – Those in receipt of Jobseeker’s Benefit/ Allowance, excluding systematic short-time workers and self-employed persons. – Those who work in seasonal industries up to three days per week and in casual employment. © Edco 2012. Positive Economics The Live Register cont. Engaged in the black/shadow economy. Not seeking employment. Signing on for PRSI credits and are already employed. © Edco 2012. Positive Economics Quarterly National Household Survey (QNHS) The Quarterly National Household Survey (QNHS) is a better measure of unemployment in Ireland because it excludes the people who: Legally sign on and work simultaneously. Legally draw Unemployment Benefit/ Unemployment Assistance because they work three days per week or are in seasonal or casual labour. © Edco 2012. Positive Economics Quarterly National Household Survey (QNHS)cont. Sign on but are not seeking employment or are not available for work. The QNHS also includes those who are unemployed but are not in receipt of social welfare for other reasons. © Edco 2012. Positive Economics Causes of Unemployment Economic recession/cyclical unemployment Relocation of industry Uncertainty about the future Reliance on the construction sector/structural unemployment © Edco 2012. Positive Economics What is the Impact of Unemployment on the Economy? Decrease in consumer demand Falling inflation or deflation Entrepreneurs hesitant to invest More government expenditure on social welfare Lower tax receipts Greater taxation burden on the employed/ reducing the incentive to work Increased social problems Wage increases not sought Reduced demand for imports © Edco 2012. Positive Economics Strategies for Reducing Unemployment in Ireland Decrease taxation Sustain a low rate of corporation tax Subsidise additional labour Reduce costs for business Capital investment by government © Edco 2012. Positive Economics Strategies for Reducing Unemployment in Ireland cont. Encourage new investment opportunities Invest in education and training Consumption of Irish goods Encourage entrepreneurship Encourage labour-intensive industries © Edco 2012. Positive Economics Strategies for Reducing Unemployment in Ireland Encourage new investment opportunities Invest in education and training Consumption of Irish goods Encourage entrepreneurship Encourage labour-intensive industries © Edco 2012. Positive Economics What are the Effects of Job-sharing? Fewer people on social welfare Less absenteeism Lower tax revenue intake due to lower marginal tax rates Lower imports as a result of reduced incomes Increased administration/training costs Social problems decrease © Edco 2012. Positive Economics Underemployment Underemployment is a situation whereby a factor of production (e.g. labour), though not actually unemployed, is working below capacity. © Edco 2012. Positive Economics Foreign Direct Investment (FDI) in Ireland Ireland has attracted many multinational companies in recent years for a variety of reasons: Availability of skilled/English-speaking workforce Low rates of taxation Access to EU market/member of the euro Availability of state incentives Good industrial relations © Edco 2012. Positive Economics What are the Advantages of Lowering the Minimum Wage in Ireland? Lower labour costs Lower selling prices Increased demand/protection of jobs Investment stimulus Reduced risk of relocation © Edco 2012. Positive Economics What are the Disadvantages of Lowering the Minimum Wage in Ireland? Reduced standard of living Reduced aggregate demand/spending Impact on general wage levels Workers on lower incomes suffer the most Discourage employment © Edco 2012. Positive Economics The Black/Shadow Economy The black/shadow economy describes all economic activity that goes unrecorded in the national income accounts. © Edco 2012. Positive Economics Economic Effects of the Black/Shadow Economy in Ireland Loss of tax revenue to the government Decline in legitimate business activity/threat to jobs Increased government expenditure on enforcement Pressure on government services/finances Increased crime levels Standards of products/services © Edco 2012. Positive Economics What strategies could the government undertake to discourage black/shadow market activity? Reduce direct taxation rates Reduce indirect taxation Better enforcement by Revenue Commissioners Educate the public about the importance of tax revenue to the state Simplification of the tax system/close all tax loopholes © Edco 2012. Positive Economics Karl Marx (1818–83) Theory of surplus value As capitalists want to make more profit, eventually labour will be replaced, resulting in unemployment. However, this is at odds with the fact that only labour can generate profit. Reduced demand as a result of unemployment Two-tiered society Labour theory of value © Edco 2012. Positive Economics