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Showing posts with label structural unemployment. Show all posts
Showing posts with label structural unemployment. Show all posts

A government decides that its economy is currently operating with an unacceptably high level of unemployment. Discuss the view that the government's best option as a method of reducing unemployment is to use discretionary fiscal policy. [15]


Unemployment refers to the situation where people are actively seeking employment but are unable to find work or unwilling to accept the jobs that are currently available. There are many types of unemployment, such as real-wage unemployment, demand-deficient (cyclical) unemployment, structural unemployment, seasonal, and frictional unemployment. In this essay, I will be discussing whether discretionary fiscal policy is the best option to reduce unemployment.

(Insert AD-AS diagram)

In figure 1, the economy was originally below the full employment level at Y1. In order to reduce unemployment, the government can use expansionary fiscal policy to shift AD1 to AD2 so that Y1 will reach Yf which will reach full employment level. Expansionary fiscal policy involves increasing government spending and reducing direct taxes. There are two main types of direct taxes, personal income tax and corporate income tax. When personal income tax is reduced, households will have more disposable income, and thus consumption will increase. Moreover, when corporate income tax is reduced, firms will have more post-tax profits, and thus investments will increase. Since AD = C + I + G + (X-M), AD will increase and shift to the right, hence solving the problem of demand-deficient unemployment.

However, there are limitations to expansionary fiscal policy. Firstly, it can be massively limited by tax insensitivity. Even when corporate taxes are cut, firms may not invest during an economic downturn as they are likely to be pessimistic about the future. Similarly, despite a reduction in personal income taxes, households who are fearful of future pay cuts and retrenchment are more likely to save rather than spend any potential increase in disposable income. Secondly, it may also result in the crowding out effect. Expansionary fiscal policy involves running a higher budget deficit that is probably financed from increased borrowing, especially since increases in government spending are sometimes matched by decreases in the rate of taxes. The demand for loanable funds rises and hence raises interest rates, which in turn deters consumption and investment. Higher interest rates will also cause the currency to appreciate, thereby curbing net exports because exports appear relatively more expensive while imports appear relatively cheaper. The expansionary effects of the budget deficit are therefore negated by a reduction in consumption, investment and net exports. What occurs is therefore merely a diversion of private demand towards public demand, rather than any real net rise in overall demand. Private sector demand is said to be ‘crowded out’ by public demand.

Alternatively, the government can also use expansionary monetary policy to reduce unemployment. Expansionary monetary policy occurs when the central bank increases the money supply. Interest rates will decrease and the cost of borrowing becomes cheaper. Households will find it cheaper to borrow to consume and firms will find it cheaper to borrow to invest. Both consumption and investment will rise. Since AD = C + I + G + (X-M), AD will increase and shift to the right thus reducing demand-deficient unemployment. Assuming the country has an open economy with a freely floating exchange rate system, the decrease in interest rate will cause the currency to depreciate. Currency becomes weaker and there will be hot money outflow. Exports become relatively cheaper while imports become relatively more expensive. Exports will increase while imports will decrease. Since AD = C + I + G + (X-M), AD will increase further and shift to the right further, hence, further reducing unemployment.

However, there are also limitations to expansionary monetary policy. One of the limitations is that consumption and investment are likely to be interest insensitive during a severe economic downturn as firms and households are unlikely to borrow when the economic outlook is very poor. Another limitation is the liquidity trap, which refers to the situation where interest rates are already so low such that the further cuts in interest rates are unlikely to have any impact in stimulating borrowing. At the extreme, when interest rates hit zero, this means that there is no more room for further interest rates cuts and expansionary monetary policy stops being viable.

In conclusion, it is not enough to use expansionary fiscal policy as the only way to reduce unemployment as there are many limitations to the policy. However, it will be best if both expansionary monetary and fiscal policy are used concurrently, so that the strength of one policy can overcome the weakness of the other. For instance, in a mild economic downturn, using monetary policy is arguably better than using fiscal policy as interest insensitivity has not set in and monetary policy is not affected by the crowding out effect. Whereas, in a deep recession, interest insensitivity is high and expansionary monetary policy generally loses its effectiveness. Hence, by using both policies concurrently, it will be able to reduce unemployment more effectively. 

JC Economics Essays - This is a H1 / H2 A levels economics essay paper response with a well developed and interesting answer. This is a very good effort. As good practice, the questions to ask yourself here are - what alternative approaches could you take to answering this economics question? This economics essay was also written under timed conditions, and so is not a complete response. What other arguments could be brought in to help bolster or counter-argue against the case? Think like an economics tutor critiquing and analysing the essay - what could be better improved, and why? 

Special thanks to HH for her kind and useful contribution, and also special thanks to SS for vetting and editing her response. HH has made great improvements in her economics  since 2015. Thanks for reading and cheers! 

Evaluate economic policies currently used by the Singapore government to correct imperfect information and immobility of the economic factors of production, to correct market failure. [25]


This economics paper is about economic policies in Singapore that target market failures, in particular imperfect information and immobility of the factors of production, which hamper the workings of the invisible hand through the price mechanism. The Singapore government has been active in combating market failure through the use of taxes, subsidies and laws. These policy methods have shown to be useful in reducing imperfect information and factor immobility. However, these policies are not foolproof and they do have their limitations. Therefore, in this policy essay, I would discuss if the policies adapted by the Singapore government have achieved their policy aims.
           
One of the laws implemented by the government is mandatory pricing. This policy requires all retail stores in Singapore to display their prices, which then allows consumers to obtain the pricing information more easily than before. This policy in general therefore reduces imperfect information and also allows price discrimination since it reduces the chance for shop owners to charge some consumers more than others.
           
Another of such laws implemented by the government would be the implementation of the ‘Lemon Law’. This law allows consumers to return the products within a stipulated period and it is usually within six months of purchase. This policy protects consumer rights as they are allowed to return the goods that they deem unsuitable for themselves. This reduces the impact of having imperfect information since goods are made refundable.
           
Also, the government has made it mandatory for hospitals to display their average hospital bills on their respective websites. This is because many people do not know the cost of seeing a doctor and this would affect the ability to make decisions and to seek the most suitable medical treatment. The publishing of prices also serve to reduce the extent of principle-agent problems since consumers are now able to obtain more information than before.
           
In addition, the government heavily subsidized primary and secondary education as education is deemed as both a positive externality, which refers to the positive spillover effects it can have on third parties, and a merit good, which refers to a good which the state feels will be underconsumed if it is left to the free market. Since children may not attend schools as they do not know what is best for them and their parents may be short-sighted and hence do not let their children attend school, subsidizing education will incentivize parents to send their children to school. To complement this, the government has established a law which makes attending primary and secondary school compulsory so locals can receive at least a basic education.
           
As for factor immobility, geographical immobility is arguably not directly applicable to Singapore since Singapore is a small country and has well-established transport networks. Hence, it will be unlikely that people will experience geographical immobility.

However, occupational immobility is a problem in Singapore and the government has done much to deal with it. Some examples will be subsidizing upgrading and computer courses for people so that these people can upgrade their skills and remain competitive and relevant in today’s society. Educating locals such as having English courses would also help them to find a better job. Hence, occupational immobility is corrected.
           
Going on to discuss the benefits of these policies, the use of laws is rather effective in reducing the problem of imperfect information. Mandatory pricing is useful as customers no longer has to ask about the prices before purchasing it and more price transparency allows consumers to compare prices between shops and choose the best and most suitable product for themselves. Shop owners and retailers are also unable to exploit consumers.
           
As for Lemon’s Law, it reduces the incentive of the sales person to boast about the functions of the product so as to get customers to purchase them. This is because customers now have the right to refund the goods if they are not satisfied with them. Hence reduces the chance of firms withholding information from customers in order to push up their sales.
           
Also, getting hospitals to display prices is a good move since pricing is definitely more transparent now and patients are able to make better choices for themselves in terms of deciding on their own preferred medical treatment. They would also not be taken aback when they see the amount they have to pay at the end of the treatment since they already do have the information.
           
Furthermore, the government has successfully prevented education from being under-consumed due to imperfect information. This is because Singapore’s literacy rates are one of the highest in the world and many enjoy the privilege of going to school despite their family background.
           
Lastly, education and training programmes implemented by the government has been useful in helping the retrenched get new jobs. It has also allowed many to obtain new skills and obtain better paying jobs than before and therefore improving their standard of living. Occupational immobility can be overcome through these policy measures.

In conclusion, the policies implemented by the Singapore government to correct market failure caused by imperfect information and factor immobility have largely been successful. However, there are some drawbacks. For instance, since hospitals want to remain competitive and to reduce their prices, they may sacrifice on their quality of service in order to cut costs. Also, as for the Lemon’s Law, a lot of administrative costs could be incurred as the products can be returned and it may be troublesome for firms to keep track of these requests. This law may also be misused by consumers as consumers may purchase the good and use it for a while and then return it later on when they no longer have use for it or grown sick of it. This puts firms at the losing end and they might not be able to profit from their businesses. In addition, it is very difficult to get adults to go for skills upgrading and training as they may have lost touch with it. Some may lack basic training as well and it would be difficult to undergo training and education. Hence, not all government policies are foolproof.

JC Economics Essays - H1, H2, H3 economics questions and suggested answers - Economics tutor's comments: This economics essay on market failure in the context of Singapore is very good in the sense that it provides a lot of economics application, and real life examples and answers. Examples are very good and should be used to provide a beautiful, well rounded answer to economics questions. However, it does not define many key terms and does not explain many of the economic theories that are relevant. Always remember to define key economic concepts and key economic terms because the examiner would want to see if the candidate knows his or her economics material well. Also, there is the need to use clear, well explained, economics diagrams to illustrate key concepts and arguments, which is sorely lacking in this economics paper. However, having said that, overall this paper can do quite well because of its strengths as well as the interesting evaluative comments and analysis made towards the end of the paper. What are the other strengths of this economics essay? Special thanks to S S, A G and S H for their contributions to this economics paper. 

Discuss whether a reduction in unemployment improves the standard of living of a country. [13]


Material standard of living (SOL) refers to the amount of goods and services one can enjoy in their narrow measurable material form. In its non-material form, non material SOL includes leisure, having enough rest, healthcare benefits and personal welfare. 

Most of the time, real Gross National Product (GNP) is the closest form of measurement of material SOL. Real GNP is the total output produced regardless of geographical boundaries, so long as it is owned by a citizen of the country, over a period of one year, after taking into account the inflation rate of the country. This is because real GNP takes into account not only the inflation rate, but also population growth and only includes factors of production by citizens only. 

A reduction in unemployment will increase total national income (NY) since more people are currently working. This increase in NY can be an increase in GNP as well since more workers may produce more products. Also, the increase in NY can result in higher consumption, pushing up aggregate demand (AD = C + I + G + X - M) as people see that the economy is doing well and consume more. Furthermore, the newly-employed will now have an income to spend. These will improve their material standard of living as they satisfy more of their material needs or wants.

Also, as one becomes employed, they will be relieved of the emotional stress and psychological burden of being jobless or unable to provide for their family. This way, a reduction in unemployment will improve the emotional well-being of the newly-employed, leading to improvement in non-material standard of living. 

Furthermore, a reduction in unemployment rate can bring down the crime rates as well. Given that more people are employed, there will be less people going against the law such as robbing others as a result of desperation. This will also improve the non-material aspect of standard of living. 

However, it is not always true that a reduction in unemployment will lead to a better standard of living.

If more people are employed to work for long hours, there will be a fall in their welfare as they may be overworked and have a higher tendency to fall sick due to the lack of rest. The workers’ health is at stake and they might have to pay for their own medical bills, resulting in a fall in both the material and non-material aspect of standard of living.

Also, a reduction in unemployment rate may actually mean that both the parents are working instead of one. This might be bad for the children as they might be left at home on their own. The lack of communication and bonding time within the family might cause the children to feel neglected and the family ties may not be as strong. Parents might not understand the needs or wants of their children well and this may lead to misunderstandings and disputes. Therefore, this reduction of unemployment may lead to a fall in non-material standard of living.

Moreover, more people working together in a small area might result in poor working conditions. If more people are working under a worse off condition then they are unhappy during their time working. This will also lead to a fall in the non-material standard of living.

Furthermore, an increase in employment rate might not necessarily means an increase in the amount of goods and services produce due to the law of diminishing marginal returns. It states that the last person added to the production may produce lesser than the previous and there will be a point where increasing the quantity of labour will not help to increase production. Given that the increase in income led to an increase in AD, it might cause demand-pull inflation as there is too much money chasing too few goods. Therefore, there might not be an increase in the material standard of living as well. 

Additionally, if the reduction of unemployment rate leads to higher level of production that causes higher levels of pollution or higher rates of environment degradation, then the non-material standard of living did not improve since we are exposed to more pollution that may affect our health. 

All in all, a reduction in unemployment is a good thing and it is also one of the macro-economic aims of the government. However, firms should take care of the welfare of their workers and ensure that the higher level of production does not cause any harm to the environment or people. The workers should have a work-life balance, leaving enough time for leisure and family as well. 

JC ECONOMICS ESSAYS: Economics tutor's comments - Note: This economics essay was written by an Economics student who has already graduated from Junior College, who attained a grade A at H2 Economics at the A levels, but it is the student's own opinions and analytical, essay writing methods, and should be read with an critical, analytical, observant eye. This economics essay is slightly different from the others in that this was a reflective attempted piece by a former student who is now an undergraduate, whereas the other essays on this site were written by economics tutors or students studying Economics at the point in time their respective essays were written. Some light essay editing was undertaken by me, the editor, because this essay was written free style. However, the main thrust of the essay and its original flavour are the same. This essay shows that there are a variety of equally valid approaches of tackling Economics essay questions, and that essay skills and techniques are very important and transferable skills, that last the test of time. However, critical thinking and reflection still applies - what is good about the essay's introduction, body, and conclusion? What can I learn from this essay, written by a former student who achieved a grade A? What can I do better, or how can I reach this standard or exceed it? Thanks for reading, and cheers. 

With reference to the circular flow of income, explain how fiscal policy can be used to reduce unemployment. [12]


The circular flow of income is the flow of transactions between households and firms in both the product and factor market. In order to be more realistic, we consider the circular flow of income in an open economy with four sectors, namely households, firms, government and the foreign sector.

[Include the diagram for circular flow of income in an open economy]

From the above figure, we can see that the money in an economy maintains approximately the same at all times. This is because people in the households work for firms and are given a salary which is their income. In return, the households use the income they earn to buy their daily necessities or to satisfy their wants by purchasing goods and services from firms. However, there are also withdrawals and injections for an open economy. Withdrawals (W) include savings (S), taxes (T) and money spent on imports (M) while injections (J) include investment (I), government expenditure (G) and money received from the sale of exports (X). [W = S + T + M; J = I + G + X]

Fiscal policy makes use of the G, C and I components. It injects money into the economy either through government expenditure or government investments, thus having more money in the circular flow of income. When G is increased, there will be more spending on building the infrastructure, education or providing subsidies. These will result in more jobs for the people as construction workers will now have a job to build something and hire more workers to help if the firm is short of labour. As for education, the Ministry of Education may require more teachers, thus having more jobs, or they will build more schools and need more supporting staffs as well. These will certainly help in demand-deficient unemployment.

When there is demand deficient unemployment, aggregate demand (AD) falls, resulting in national income (NY) to fall as well. The fall in AD shows that there has been a lack of demand in consumption, therefore not requiring as many workers as before, resulting in many people losing their jobs. By increasing G as said earlier, it will push AD up again, getting more people to be employed.

Also, by providing subsidies for retraining of workers, government can solve the problem of structural unemployment. Structural unemployment happens when there are people who are willing to work yet they do not have the right skills for the jobs in the market. These subsidies can serve as an incentive for them to retrain themselves to have the right skills for the jobs in sunrise industries.

By increasing investments, the government is increasing the aggregate supply (AS), therefore preventing the economy from reaching a bottle-neck situation where it is close to full-employment. It will also create more jobs for the people in future.

Increasing investments also make business look more optimistic as they have more money to work with currently. They can invest on research and technology which will provide more jobs for some people and slowly the company may expand and hire more people, thus reducing unemployment.

Since AD = C + I + G + (X – M), when a sum of money is injected into the economy, it triggers the multiplier process. The multiplier, k , is dependent on the marginal propensity to withdraw (MPW), which is make up of marginal propensity to tax (MPT), marginal propensity to  import (MPM) and marginal propensity to save (MPS). [MPW = MPT + MPM + MPS]

Assuming that the government injects $100 million into the economy for investment on companies and assuming k to be 0.5, the companies might make use of the $50 million to hire more workers. The process does not stop here as workers will then use $25 million to buy necessities and satisfy their wants therefore increasing C. The process will continue until change in NY is equivalent to k times of amount of money injected, which in this case is $50 million.

The multiplier process shows that people have more money at hand and are more willing to consume. Increase in consumption increases AD as well, resulting in firms producing more outputs and requiring labour, thus reducing unemployment.

These show that fiscal policy provides injections that expands the circular flow of income, allowing AD and AS to increase so as to provide more jobs and reduce unemployment.

JC ECONOMICS ESSAYS: Economics tutor's comments - Note: This contribution was written by an Economics student who has already graduated from Junior College, who attained a grade A at H2 Economics at the A levels, but it is the student's own opinions and analytical, essay writing methods, and should be read with an critical, analytical, observant eye. As the student has graduated from junior college already, has she made some simple mistakes? Has she written some arguments and phrases less clearly? Think about those things as you read, and always read essays with a critical mind. What can be done to develop this essay further? What skills can you bring to the table, to make this economics essay the best that it can be? What other examination techniques, skills, economics content, or economics knowledge could you use to buttress the arguments? Think always of how to improve your essays and cross refer to other essays, to read and see the best essays, or the good essays, to improve on your writing, skills, and knowledge. Thanks for reading. 

(a) Explain the likely types of unemployment in Singapore that could challenge sustainable growth. [10]


(a) Explain the likely types of unemployment in Singapore that could challenge sustainable growth. [10]

Introduction

What is unemployment? Unemployment is the situation when people willing and able to work are unable to find employment, with the most common types being structural unemployment, demand-deficient unemployment, frictional unemployment, and seasonal unemployment. This essay explains the likely types of unemployment in Singapore that could challenge sustainable economic growth. Unemployment in Singapore that could affect sustainable growth is likely to be brought about by the following major factors: changes in the underlying structure of the economy and cyclical factors.

Body of Essay

The first likely form of unemployment in Singapore that could challenge sustainable growth would be structural unemployment. Structural unemployment occurs when there is a mismatch of skills and knowledge. For instance, structural unemployment occurs when workers in sunset industries, with declining demand for their products, are unable to be reemployed in new, growth industries, with increasing demand for those new and probably high-tech products, due to a mismatch of skills, talents, and training for the new changed production structures. Also, for example, in Singapore in the 1980s, there was a shift from low-end production to higher-end production and this shift required workers to have the required higher level skills. As a result of the mismatch of skills required of workers to work in the new high-end production industries, structural unemployment occurred. Singapore often faces structural changes due to the dynamic changing needs of her economy, and the extent of structural unemployment depends on the adaptability of workers to adapt to these new needs.

The second form of unemployment that could challenge Singapore’s sustainable growth would be cyclical unemployment, also known as demand-deficient unemployment. This unemployment is linked to the business cycle, where downturns occur now and then, aggregate demand (AD) falls, causing unemployment, and a fall in actual economic growth. Actual economic growth can be thought of as an increase in real national income in a given period of time. In particular, due to the small size and relative openness of the Singapore economy, dependence on trade makes Singapore vulnerable to cyclical unemployment, economic recessions, and falling AD. This leads to unemployment because there would be a fall in the general price level, profit expectations would also fall, and producers would cut down on employment, resulting in more unemployed workers with fewer job vacancies available.

Falling AD of the Singapore Economy

The sustainable growth of the Singapore economy can be defined as a sustained increase in the real national output or real national income (real Y) over a period of time. Structural and demand-deficient unemployment affect the sustainable growth of the Singapore economy as they affect the sustained increase in Singapore’s national income. During periods of low economic activity and high unemployment, there will be a fall in the consumption (C), investment (I), and net exports (X-M) of an economy, shifting AD to the left. The fall in C is a result of the fall in the disposable income of the workers as a result of being unemployed. The fall in C, I and (X –M) would lead to a fall in the AD. Assuming that the Aggregate Supply (AS) curve is unchanged, the fall in AD would translate into a fall in real Y over the period. This fall in real Y over a period of time would challenge Singapore’s sustained growth.

Conclusions

In conclusion, structural and demand-deficient unemployment are the two main forms of unemployment which potentially challenge the sustainable growth of the Singapore economy, lowering the national income of the economy. There are also other forms of unemployment such as frictional unemployment or seasonal unemployment that would also occur in Singapore. However, such forms of unemployment would not affect the sustainable growth of the Singapore economy; as such both structural and demand-deficient unemployment are by far the biggest enemies to growth.


JC Economics Essays: Tutor's Comments - Special thanks to TJL for his kind contribution. TJL is a friend (fellow teacher) of mine I knew from National Institute of Education (NIE) days, and who later went on to become an excellent, outstanding Economics tutor at IJ after completing his PGDE. This Economics essay was written under examination conditions. In the earlier, past few posts, here on JC Economics Essays, I have given detailed comments about what was right, good, and great about the essays and gave my view, comments, and ideas. It's time for me to revert back to the older Socratic questioning style of earlier posts here on my site! TEACHER'S QUESTION: putting yourself into the shoes of an Economics tutor, and ignoring the provenance of this sample/ model /version of the answer given by a tutor - what grade would you give this Economics paper, and why? what are the good things that you can learn from this Economics paper, and what are bad things that you should not learn from this paper? also, how would you improve on this Economics paper? how else could you approach it? Do remember to ask questions, and read with a critical, yet open, constructive mind. Thanks for reading and cheers!

(b) To what extent is fiscal policy the most effective measure to lower the unemployment rate in Singapore? [15]


Singapore’s unemployment rate could surge to a 20-year high of 5 percent next year. This would be the highest level of unemployment since 1986.
Adapted from The Straits Times, February 2009

(b) To what extent is fiscal policy the most effective measure to lower the unemployment rate in Singapore? [15]

Fiscal policy is the use of government spending and taxes to affect the AD of an economy in order to pursue the macroeconomic goals of governments. In the case of unemployment, expansionary fiscal policy can be used – where the government increases government spending and lowers taxes (both personal income and corporate) in order to boost AD. This essay argues that to a large extent, while fiscal policy has the potential to work in Singapore, it is not the most effective measure to lower the unemployment rate and there are many other measures which are more effective given Singapore’s context.

Fiscal policy

It is clear that on the one hand fiscal policy in theory can reduce cyclical unemployment. With an increase in government spending and lowering of income taxes and corporate taxes, C, I and G increase and thus AD shifts to the right. Due to the multiplier effect, real national income would increase, and as real output increases, there would be a need for more workers. This would overcome cyclical unemployment.

Also fiscal policy, if spent on infrastructure and other areas such as skills upgrading, can lead to solving structural unemployment. For instance, the Singapore government spends a lot of money on the Workforce Development Agency. If the fiscal policy is directed towards increasing the supply side (supply side policy), then the skills gap between workers and those required by industries might be solved and thus structural unemployment might not be a problem. Hence, fiscal policy does have some strengths and could be used as a viable policy.

Limitations of fiscal policy

On the other hand, there are limitations of fiscal policy given Singapore’s context. The multiplier effect is small, given Singapore’s high MPM and MPS (marginal propensity to import and save). Alternatively, it can be said that there are many leakages given Singapore’s context – as it is small and open. Also, a cut in taxes may lead to a small shift in C and I if there is widespread economic pessimism, and a reluctance to spend more money. In addition, there is a time lag effect where it takes a long time to formulate policies to decide on the appropriate tax cuts and which type of government spending to raise.

Other policies might work better

Furthermore, fiscal policy may not be the most effective policy to reduce cyclical unemployment. There are two other policies that might be able to reduce unemployment better in Singapore’s context. The first is exchange rate policy and the second is signing of new FTAs (Free Trade Agreements).

First, given that Singapore is a small and export oriented economy, where the total value of exports and imports comprise more than her GDP, an exchange rate policy could be implemented. In Singapore’s case, due to the classic trilemma, Singapore does not pursue monetary policy but instead pursues an exchange rate policy through the use of a managed float system (dirty floating). Depreciating the Singapore dollar would lead to an increase in (X-M) and thus increase real output and lower unemployment in Singapore by shifting AD to the right to the full employment level. At the same time it should also be noted that there is no perfect policy because cost push inflation could be a result of this exchange rate policy as the higher prices of imported raw materials into Singapore could lead to higher prices. Given that Singapore imports a lot of her raw materials and goods and services, this is a distinct possibility.

Second, by signing more FTAs Singapore has more access to international, foreign markets. This will help Singapore reduce her reliance on major trading partners if those countries experience recession. Thus, if X goes up, then AD will also increase, and thus cyclical unemployment will be lowered as the economy experiences actual growth if the FTAs are successful. On the other hand there are also search costs and increased competition with local producers in Singapore which might not be politically acceptable, and Singapore might also become more susceptible to external shocks to her economy.

Third, by increasing information available to workers, the government can reduce frictional unemployment. This is a simple solution that does not involve fiscal spending or exchange rates or FTAs, and should be used to reduce frictional unemployment.

Conclusions

In conclusion, the dominant cause of unemployment in Singapore is likely to be cyclical unemployment because the economy is dependent heavily on external markets, and therefore while fiscal policy can be used, it is not effective to a large extent, given the small multiplier effect. Given the changing dynamic comparative advantage of Singapore’s economy, it is imperative that policies to lower structural unemployment have to be considered seriously as well. In the final conclusion, both fiscal and other policies have to be used together to reduce the various types of unemployment in Singapore.


JC Economics Essays - Tutor's Commentary: This H2 Economics essay is also very well written, and addresses the question pertinently. The usual questions are: what can I do better, what I can improve on, and what have I learnt from reading this essay? This essay and the previous part were both very professionally written and specially designed and targeted specifically to answer the question. Yes, there can be alternative views, and there should be different approaches - but what is the strength of this approach? What have you learnt from here?

*PS I have had the sudden and rather zany idea that I should indeed try to make this site the most popular free Economics website for students reading the A levels ... and why not? I shall just do my best. Special thanks to my wonderful and encouraging students (you guys know who you are) who have complimented me on my Economics website. I will do my best. Cheers :) *

(a) Explain the main types of unemployment in Singapore. [10]


Singapore’s unemployment rate could surge to a 20-year high of 5 percent next year. This would be the highest level of unemployment since 1986.

Adapted from The Straits Times, February 2009 (adapted from an examination question)

(a) Explain the main types of unemployment in Singapore. [10]

Unemployment is commonly defined as the situation in which people who are willing and able to work are unable to find work at the prevailing wage rate, and there are a few main types of unemployment such as cyclical (sometimes called demand-deficient unemployment), structural, seasonal, and frictional unemployment. In Singapore, the three most common and main types are cyclical, structural, and frictional unemployment, given Singapore's context. This paper explains these three main types of unemployment. 

Cyclical Unemployment

Demand-deficient unemployment or cyclical unemployment is a major cause of unemployment in Singapore because Singapore has a large external sector and is largely dependent on external demand for economic growth. For instance, in the contract manufacturing of electronics, Singapore exports heavily to the rest of the world. If international demand for Singapore’s electronics exports falls, then firms producing those goods will face a lower demand. Hence, firms that face decreased demand for their goods and services might reduce the cost of production by reducing their output and employment.  Another way of looking at this same issue is - since Singapore is a small and open economy, heavily dependent upon exports, when exports fall, Singapore's AD will fall, and shift to the left, thus lowering national output and income, while increasing demand-deficient unemployment. 

Structural Unemployment

As a result of globalisation, there is a lot of restructuring in Singapore and in the process structural unemployment might result in Singapore. First, Singapore has changed from a labour intensive to capital intensive economy, and thus different skills are required. Workers who do not have the appropriate training and expertise to move into a different industry are laid off, thus contributing to unemployment. For instance, Singapore has recently moved into the biomedical and R&D (Research and Development) industries and thus workers who can only work in the lower end manufacturing industries might find themselves unemployed since mass production work can be outsourced to India and China.

Frictional Unemployment

Frictional unemployment happens because it takes time for people to find new jobs when they change jobs or look for suitable jobs. Job creation and destruction creates the need for people to look for jobs and for firms to look for employees, and as such there is a time lag. Also students who have finished studying and are looking for a job also tend to be frictionally unemployed.

Conclusions

In conclusion, on balance, the dominant cause of unemployment in Singapore is likely to be cyclical unemployment because the economy is dependent heavily on external markets and thus the effects of global recession would impact unemployment in Singapore heavily. With a global recession (especially during 2008-2010), a fall in global income results leading to lower purchasing power, with a fall in consumption and net exports assuming that demand for exports and important are both price elastic. The concomitant poor business sentiment would result in falling investment, and AD would fall further. Fewer goods and services are demanded and as a result firms would then retrench workers thus causing cyclical unemployment.


JC Economics Essays - Tutor's Commentary: This H2 Economics essay on Singapore's unemployment is very well written and addresses the economics question pertinently, and would get rather high marks. It is clearly written, direct, and answers the question posed. Always remember to answer what the question is asking for, and not what you imagine the question to be asking you. This tip can prove very valuable in examinations. Ask yourself a few questions: how can this economics essay be improved, and made even better? What would I have done differently or similarly? Thanks for reading, and cheers!

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