2.1.3 Causes of Unemployment

Question 1

what are the causes/types of unemployment

Answer 1

• structural
• frictional
• seasonal
• cyclical (demand-deficient)
• real-wage (classical)

Question 2

define structural unemployment

Answer 2

occurs with a long-term decline in demand for the goods and services in a particular industry leading to job losses

Question 3

give an example of structural unemployment

Answer 3

• 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

Question 4

what can structural unemployment cause

Answer 4

• geographical immobility of labour
• occupational immobility of labour

Question 5

define geographical immobility of labour

Answer 5

refers to barriers for people moving from one area to another to find work e.g family ties, variations in house prices

Question 6

define occupational immobility of labour

Answer 6

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

Question 7

what are the causes of structural unemployment

Answer 7

• 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

Question 8

what is long term unemployment

Answer 8

people who have been unemployed for 12 months or more.

Question 9

why is long term unemployment a problem

Answer 9

the longer someone is without a job, the harder it is for them to find their way back into paid employment

Question 10

what are the reasons for long term unemployment being bad

Answer 10

• 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

Question 11

define frictional unemployment

Answer 11

transitional unemployment that occurs as workers move between jobs, mainly through career changes or geographical changes

Question 12

is frictional unemployment generally short term or long term

Answer 12

short term

Question 13

why does frictional unemployment exist

Answer 13

workers do not have perfect and immediate information about every job opportunity that may be available

Question 14

why is frictional unemployment considered unavoidable and to an extent desirable

Answer 14

there are always job vacancies in an economy, so people will always be moving between jobs and those vacancies can be filled

Question 15

what are the causes of frictional unemployment

Answer 15

• 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

Question 16

define seasonal unemployment

Answer 16

occurs when workers are unemployed at different times of the year due to seasonal demand

Question 17

give examples of industries where seasonal unemployment may be high

Answer 17

• farming
• tourism
• retailing
• hospitality
• construction
• tuition services

Question 18

define cyclical (demand deficient) unemployment

Answer 18

caused by a lack of demand for goods and services and it usually occurs during periods of economic decline or recessions

Question 19

give examples of cyclical unemployment

Answer 19

• Global Financial Crisis
• Pandemic 2020

Question 20

explain why cyclical unemployment occurs

Answer 20

in a recession, lower incomes, less demand for goods and services, less output, less derived demand for labour

Question 21

how is cyclical unemployment shown on a diagram

Answer 21

shift AD inwards

Question 22

define classical unemployment

Answer 22

occurs when wages are above the equilibrium wage rate causing the supply of labour to be greater than the demand for labour

Question 23

why does classical unemployment occur

Answer 23

distortions to the labour market such as national minimum wage and trade union power can maintain real wage rates above their equilibrium

Question 24

why is structural unemployment considered to be more harmful than frictional

Answer 24

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