Types and causes of unemployment
Syllabus: Describe, using examples, the meaning of- frictional,
- structural,
- seasonal and
- cyclical (demand-deficient)
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- frictional,
- structural,
- seasonal and
- cyclical (demand-deficient)
Additional Notes and Amendments
Frictional Unemployment: Frictional Unemployment is caused by the imperfect working of the labour market. When a person loses (or quits) a job they need time to research other job opportunities, go through application procedures and prepare themselves for the new job - this all takes time and it could be weeks or even months. During this time the person is counted as unemployed. This time can be significantly reduced by making relevant information about job opportunities easier to find eg Job Centres in UK, Employment Bureaus advertising facilities etc. Frictional unemployment can be geographic or occupational but is short term.
Seasonal Unemployment: Seasonal unemployment deserves its own category and is better not lumped in with Frictional Unemployment. It does have fewer problems than the other unemployment types since it is reasonably predictable. Ski Resorts and Beach Resorts are examples.
Structural Unemployment:
Explain, using a diagram, that structural unemployment is caused by changes in the demand for particular labour skills, changes in the geographical location of industries, and labour market rigidities.
Over time Demand patterns and economies change. This means in adjusting to these changes the nature of Goods and Services produced by economies (especially in the developed world) changes. In industries and areas that once were strong in the production processes you can see a decline and this leads to structural unemployment. Structural unemployment can be Geographic and/or Occupational and is a major cause of long term unemployment. In fact you could see structural unemployment as a long term version of frictional unemployment. Structural unemployment was a significant factor in the large scale unemployment problems of UK, Europe and USA as so-called heavy-industries (Steel and Shipbuilding) moved to where labour was cheaper (Japan and other Asian countries) and extractive industries (especially coal) declined as other forms of energy sources (Nuclear, Hydro-electric) became more efficient. Therefore geographically, areas in UK such as North-East (Shipbuilding), Lancashire and Yorkshire (mining) became desolate, high-unemployment areas.At the same time even if people were prepared to move areas they tended to have massively different skill-sets to those needed. A coal miner becoming a software engineer was usually not a realistic retraining programme. Therefore occupational unemployment was rife too. Finally, structural unemployment can be caused by sticky wages (rigid meaning inflexible) in goods and services: Trade Union inflexibility and minimum wage laws are examples - see Price Floors in Microeconomics.
Cyclical Unemployment:
Syllabus: Explain, using a diagram, that cyclical unemployment is caused by a fall in aggregate demand.
This can be confusing since it conjoins unemployment caused by low demand (remember the demand for labour is a derived demand) due to the natural operations of the business cycle (see Page 33)
and low demand for other reasons: It is better to think of this as Demand Deficient unemployment as this label says it all. While the business cycle can be an underlying cause another reason for demand deficient unemployment is government policy aimed at reducing inflation whereby aggregate demand is reduced. You can use the business cycle diagram to explain this and/or the AS/AD deflationary gap diagram (see Page 58). An example of demand deficient unemployment is the high unemployment figures following the credit crash of 2008.
Syllabus: Evaluate government policies to deal with the different types of unemployment.
Please see the sections on Fiscal and Monetary Policies for this but do not forget the policies suggested above and in the Micro Section.