2.1.3 Causes of Unemployment Flashcards
what are the causes/types of unemployment
- structural
- frictional
- seasonal
- cyclical (demand-deficient)
- real-wage (classical)
define structural unemployment
occurs with a long-term decline in demand for the goods and services in a particular industry leading to job losses
give an example of structural unemployment
- shift towards tertiary sector employment in the UK away from primary/secondary sector employment due to other low-wage economies
- large pools of highly skilled workers may find themselves unable to work as there is limited demand for their labour
- these workers will need to re-train and gain new skills in order to gain employment, this is time consuming and costly
what can structural unemployment cause
- geographical immobility of labour
- occupational immobility of labour
define geographical immobility of labour
refers to barriers for people moving from one area to another to find work e.g family ties, variations in house prices
define occupational immobility of labour
workers may have specific skills that are not necessarily needed in growing industries which causes a mismatch between the skills on offer from the unemployed and those required by employers
what are the causes of structural unemployment
- new jobs often require new skills
- unaffordable housing
- employer discrimination
- erosion of skills from long term unemployment
- impact of automation of certain occupations
- effects of welfare system on work incentives
what is long term unemployment
people who have been unemployed for 12 months or more.
why is long term unemployment a problem
the longer someone is without a job, the harder it is for them to find their way back into paid employment
what are the reasons for long term unemployment being bad
- skills worsen due to economic activity
- motivation to search for a job suffers the longer someone is out of work
- employers often favour people with a consistent record of being in work
define frictional unemployment
transitional unemployment that occurs as workers move between jobs, mainly through career changes or geographical changes
is frictional unemployment generally short term or long term
short term
why does frictional unemployment exist
workers do not have perfect and immediate information about every job opportunity that may be available
why is frictional unemployment considered unavoidable and to an extent desirable
there are always job vacancies in an economy, so people will always be moving between jobs and those vacancies can be filled
what are the causes of frictional unemployment
- school and college leavers entering the labour market
- people searching for work following a career change
- early retired coming back to the labour market
- mothers returning to active job search
- incomplete information can hamper job search
- people on short term contracts
define seasonal unemployment
occurs when workers are unemployed at different times of the year due to seasonal demand
give examples of industries where seasonal unemployment may be high
- farming
- tourism
- retailing
- hospitality
- construction
- tuition services
define cyclical (demand deficient) unemployment
caused by a lack of demand for goods and services and it usually occurs during periods of economic decline or recessions
give examples of cyclical unemployment
- Global Financial Crisis
- Pandemic 2020
explain why cyclical unemployment occurs
in a recession, lower incomes, less demand for goods and services, less output, less derived demand for labour
how is cyclical unemployment shown on a diagram
shift AD inwards
define classical unemployment
occurs when wages are above the equilibrium wage rate causing the supply of labour to be greater than the demand for labour
why does classical unemployment occur
distortions to the labour market such as national minimum wage and trade union power can maintain real wage rates above their equilibrium
why is structural unemployment considered to be more harmful than frictional
structural requires training and investment as workers have lost skills and is often long term, frictional is considered part of a healthy and functional economy
