• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The low-wage jobs explosion - Macroeconomics IA Commentary

Extracts from this document...

Introduction

´╗┐Internal Assessment Macroeconomics Word count: 750 Title: The low-wage jobs explosion Source: CNN http://money.cnn.com/2012/08/31/news/economy/low-wage-jobs/index.html?cnn=yes This article describes the situation in America, where after the Great Recession, the number of low-wage jobs available have fallen significantly. Unemployment is defined as people of working age and ability who are without work, available for work, and actively seeking work. The unemployment rate is the number of people who are unemployed expressed as a percentage of the total labor force. The labor market represents the demand and supply for all labor in an economy. Neoclassical beliefs are based on the idea that the free-market economy is able to achieve full equilibrium output in the long-run. Government intervention is seen to be only capable of making things worse, and the only role a government should have is to make sure that nothing prevents the market from working freely. ...read more.

Middle

If wages are dropped to W2, there will be a new demand curve D1. This will result in a new equilibrium at W2 and L1. Any unemployment left in the economy will be purely voluntary ? people who have chosen not to work at the current real wage rate. The article states that after the Great Recession, approximately 60% of the jobs lost were mid-wage positions and 19% were higher-wage positions. More than half of the people who lost their jobs during the recovery period and have since found new ones are now working for lower wages, and about one-third of these workers have taken a pay cut of 20% or more. This supports the neoclassical theory that trade union and government intervention is unnecessary. According to neoclassicists, if people lose their jobs and become unemployed, they will settle for new jobs with lower wages than before. ...read more.

Conclusion

Also, unemployed people with lower incomes will pay less tax as a result, which means less government revenue available. The government might therefore have to spend more money to solve the various social problems created by unemployment. An argument against the neoclassical belief that falling real wage rates are beneficial to the economy in terms of reducing unemployment is the negative effect they have on low-income workers. These are the people who are most affected by falling wage rates, as it further reduces what low incomes they already had. This in turn is likely to decrease their living standards. High-income workers are not affected as severely, as the decrease in wage rates has less of an impact on their incomes. In conclusion, this article supports the neoclassical belief that falling real wage rates is a solution to solving unemployment, and that the government should not interfere with the working of the market. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Unemployment IA

    Wage stickiness can be looked at from two aspects, the short and long run. In the short run only minor differences would be seen, but in the long run they might fall/grow slowly. Even though the recession caused unemployment in Spain, during December in 2010 the unemployment rate fell.

  2. Economics HL - IA

    When industries emit CO2, it becomes trapped by the earth's atmosphere, creating a greenhouse effect, where the heat can't escape the surface. The consequence will be a general increase in the world's temperature, causing the north and south poles' ice caps to melt, thus raising the sea level.

  1. Economics IA Commentary - Market Failure. Household energy bills will increase by 50 ...

    In order to correct this, 'green taxes' are being introduced in an effort to bring consumption to the optimal. This would however result in the optimal price to shift from P* to P2, which is relatively higher. Carbon emissions refer to the release of Carbon dioxide gas into the atmosphere when fossil fuels like gas, oil, or coal are burnt.

  2. IB Economics IA - Commentary 2 (Mortgage Rates Down)

    Between the week of Oct. 9 and Oct. 16, the 30-year fixed-rate mortgage posted its biggest weekly jump since April 1987, rising from 5.94% to 6.46% "Long-term mortgage rates fell slightly this week as signs the overall economy is weakening brought interest rates down market-wide," according to a statement by Frank Nothaft, Freddie Mac vice president and chief economist.

  1. IB Economics IA Commentary. Title of Extract: Economys gains fail to lower jobless ...

    Without employers actively hiring, the unemployment rate will continue to increase as victims of frictional and structural unemployment (Frictional unemployment - "unemployed workers between jobs."1; Structural unemployment - "changes over time in consumer demand and in technology."1) are left occupationally stranded and add to the post-recession number of unemployed.

  2. IB Macroeconomics Commentary

    Payrolls will shrink by several million more jobs during the remainder of this year and next, Dhawan predicted. Georgia, where job growth was especially strong in sectors related to real estate, the burst of the housing bubble has been traumatic.

  1. Microeconomics Coursework - Minimum wage

    Therefore the total quantity consumed is reduced. This method of levying an indirect tax has several advantages and disadvantages. The external cost is hard to calculate and therefore deciding on a value for the tax is difficult. However, studying the effects of taxes levied on cigarette packets may allow an estimate to be made.

  2. Economics Coursework on Macroeconomics

    As the tariff was imposed, it shifted the supply curve upwards so the market price rises from Pu to Pu+t. The demanded quantity falls from Q2 to Q4, because the price has risen. The domestic production increases from Q1 to Q3 therefore revenue increases.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work