AQA ECN 5/6 Official Revision Thread (27/06)

I asked this on tutor2u but got no response, can anyone help me here..

I said that if you have an increase demand for labour by a demand side shock then this will decrease NRU as the level of unemployment will fall at the labour market clearing wage, becuase of the increase in demand.

but this will not change the NAIRU because an increase in demand for labour will lead to a fall in the number of people unemployed, meaning people in employment get less competition and gain wage making power, cause wages to rise and a return to long run aggregate supply, or NAIRU, where costs have increased (monetary validation) and as wages have risen above the equilibrium wage rate, involuntary unemployment bids down wages and causes a return to labour market clearing again, at NAIRU

and though all that NAIRU has stayed the same but NRU has increased. if this correct, and does it show that NRU is dependant on supply and demand whereas NAIRU is only dependant on supply?

help! confused
thanks for any feedback

Your making a confused distinction between the NRU and NAIRU that doesn't exist. You are correct in saying that if AD increases then we can operate in the short run beyond LRAS (which is the NRU/NAIRU/Full employment) - but then we always return to it due to the wages rises, causing costs to rise for suppliers which pushes it back to LRAS (in the long run).

I have been taught that the NRU is the rate of unemployment when the labour market is in equilibrium. So when demand increases, this will affect the NRU I thought.

Also, I have been taught there is a distinction between full employment. does this refer to everyone having a job (supply of labour = supply of labour force) or full employment excluding voluntarily unemployed people?

Thanks

I thought structural unemployment was calssified as voluntary unemployment, because it's not the wage rate but their immobility that makes them unemployed.

i know the jan 05 papers have already been asked about....can nobody even give a brief summary what was on them? surely one of you has a copy?!

because they COULD take another job, by moving to a region where their skills are required, or by taking a job which does not require their skills (eg. unskilled labour), but they chose not to because they would prefer to wait until they get the job they want.

Same for frictional unemployment, it is voluntary because the person COULD take a job faster but he risks not finding the best job for him if he takes the first one he sees.