CH9 Unemployment

Question 1

5

What is demand deficient unemployment?

Answer 1

The economy may not always produce at the full employment level of output. The equilibrium is thus below the full employment rate of output. To maintain their inventory, firms will cut down production. They will employ less labour. This results in demand deficient unemployment. As more labour is retrenched they receive less in wages. A fall in purchasing power leads to a multiple fall in induced comsumption, resulting in a leftward shift in AD. Resulting in a multiple fall in RNY from Y0 to YN. The fall in production of goods has led to fall in derived demand for labour leading to a rise in demand deficient unemployment.

Question 2

How does technological advancement cause structural unemployment?

Answer 2

When tech adv acts as a substitute to labour, ir replaces the number of workers an employer needs to hire. Production lines that once hired many workers use software and machines doing many of their jobs. Hence technological advancement has changed the structure of the economy in terms of the production process, leading to structural unemployment. Unskilled workers who do not possess the relevant skills are left behind. There is a lower demand for factory and cashiers in today’s world. Thus there is a rise in structural unemployment of low-skilled labour as they are no longer required by the economy and lack the expertise and and training and the lack of formal education. These workers would hence need to reeducate to find employment, prolonging structural unemployment.

Question 3

How does economic restructuring result in structural unemployment?

Answer 3

Economic restructuring generally refers to a transformation of an economy in terms of the types of goods the economy is producing.