Chapter 22

1. Chapter 22

2. 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.

3. 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.

4. 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

5. 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

6. 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 part- time. 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.

7. The Live Register cont. • Engaged in the black/shadow economy. • Not seeking employment. • Signing on for PRSI credits and are already employed.

8. 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.

9. 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.

10. Causes of Unemployment • Economic recession/cyclical unemployment • Relocation of industry • Uncertainty about the future • Reliance on the construction sector/structural unemployment

11. 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

12. 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

13. 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

14. 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

15. 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

16. Underemployment Underemployment is a situation whereby a factor of production (e.g. labour), though not actually unemployed, is working below capacity.

17. 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

18. 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

19. 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

20. The Black/Shadow Economy The black/shadow economy describes all economic activity that goes unrecorded in the national income accounts.

21. 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

22. 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 alltax loopholes

23. 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