Unemployment

Question 1

Cyclical unemployment

Answer 1

This is when the unemployment rate rises during an economic downturn and falls during a recovery. It’s caused by fluctuations in the business cycle.

Question 2

Structural unemployment

Answer 2

This is caused by changes in the economy, like the decline of certain industries or the rise of automation. It happens when there’s a mismatch between the skills of workers and the needs of employers.

Question 3

Frictional unemployment

Answer 3

This is short-term unemployment caused by people transitioning between jobs, moving to a new location, or re-entering the workforce after a break.

Question 4

Seasonal Unemployment

Answer 4

Seasonal workers without jobs due to the time of year where there are seasonal changes in employment e.g. fruit-pickers in summer, retail jobs pre-Christmas

Question 5

What is the natural rate of unemployment?

Answer 5

The equilibrium rate of unemployment. At the natural rate, all those wanting to work at the prevailing real wage rate have found employment and there is no involuntary unemployment. There remains some voluntary unemployment as some people remain out of a job searching for work offering higher real wages or better conditions.

UK natural rate of unemployment = 6%

Question 6

Keynesian unemployment

Answer 6

Inadequate overall AD (aggregate demand) could lead to prolonged periods of high unemployment.