Unemployment
The
number of people of working age without a job is usually expressed as an
unemployment rate, a percentage of the workforce. This rate generally rises and
falls in step with the business cycle--cyclical unemployment. But some
joblessness is not caused by the cycle, being structural unemployment. There
are also voluntary unemployment and involuntary unemployment. Some people who
are not in work have no interest in getting a job and probably should not be
regarded as part of the workforce. Others choose to be out of work briefly
while they look for, or are waiting to start, a new job. This is known as
frictional unemployment. In the 1950s, the Phillips curve seemed to show that
policymakers could reduce unemployment by having higher inflation. Economists now
say there is a Nairu (non-accelerating inflation rate of unemployment). In most
markets, prices change to keep supply and demand in equilibrium; in the labour
market, wages are often sticky, being slow to fall when demand declines or
supply increases. In these situations, unemployment often increases. One way to
tackle this may be to boost demand. Another is to increase labour market
flexibility.
Unemployment trap
When unemployed people who receive benefits,
either from the government or from private charity, are deterred from taking a
new job because the reduction or removal of benefit if they do will make them
worse off. Also known as the poverty trap, it can be addressed, to an extent,
by continuing to pay benefit for a while to unemployed people returning to
work.
Unions
In
developed countries, at least, trade union membership and influence has
declined over the past three decades. Fewer wages are now set by collective
bargaining, and far fewer working days are lost to strikes. Unions, which are
in effect a cartel of workers, probably make unemployment higher than it would
be without them, as collective bargaining often pushes wages above the level
that would bring labour supply and demand into equilibrium. These higher wages
increase supply and reduce demand, with the result that there are more jobless
people. Unions thus deepen a conflict between those in the labour market who
are insiders, that is, union members, and those who are outsiders, typically
non-unionised, poorly paid or jobless people. However, unions can combat the
excessive market power of some firms, particularly when the firms (or a
government) dominate a particular job market. They can support workers who are
badly treated by management. They may sometimes provide an efficient, and thus
valuable, channel for communication between workers and managers, particularly
in countries such as Germany, where conflict between management and unions is
viewed as unhealthy.
Usury
Charging interest, or, at least, an exorbitant
rate of interest. Plato and Aristotle reckoned that charging interest was
'contrary to the nature of things'; Cato considered it on a par with homicide.
For many centuries, the Catholic Church regarded as sinful the charging of any
interest by lenders and it was not allowed in catholic countries, although Jews
were exempted, provided they did not charge excessive rates. According to pope Benedict
xiv, in 1745, interest should be regarded as a sin because "the creditor
desires more than he has given".
In most modern economies, interest is recognized
as a crucial part of the economic system, a reward to the lender for the risk
taken in making a loan. Even so, most developed countries have some form of
usury law imposing limits on how high interest charges can be. These aim to
protect borrowers from being exploited by unscrupulous loan sharks.
Utility
Economist-speak for a good thing; a measure of
satisfaction. Underlying most economic theory is the assumption that people do
things because doing so gives them utility. People want as much utility as they
can get. However, the more they have the less difference an additional unit of
utility will make - there is diminishing marginal utility. Utility is not the
same as utilitarianism, a political philosophy based on achieving the greatest
happiness of the greatest number.
A tricky question is how to measure utility.
Money does not (entirely) capture it. You can get richer without becoming more
satisfied. So some economists have tried to calculate broader measures of
happiness. They have found that people with jobs are much happier than
unemployed people. Low inflation also makes people happier. Extra income
increases happiness a bit, but not much. In many countries incomes have risen
sharply in recent years, but national surveys of subjective well being have
stayed flat. Within countries, comparing people across the income distribution,
richer does mean happier, but the effect is not large. Married people are often
happier than single people; couples without children happier than couples with;
women happier than men; white people happier than black people; well-educated
people happier than uneducated people; the self-employed happier than
employees; and retired people happier than economically active people.
Happiness generally decreases until you are in your 30s, and then starts rising
again. Other economists are dismissive of such studies. They argue that people
are rational maxi misers of their own utility, so, by definition, whatever they
do maximizes their utility.
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