Causes of unemployment

Types/Causes of Unemployment Frictional Structural Demand deficient, cyclical Real wage inflexibility Seasonal

Frictional Unemployment – between jobs, seeking job always some new graduates newly redundant career changers due to imperfect information Better way of bringing jobs and workers together (internet helps)

Structural Unemployment Demand for labour in an individual labour market is, or falls below, supply capital-labour substitution long-run decline in an industry technological change (eg online retailing, new Products) requires retraining and often moving must bring jobs & workers’ skills together

Demand deficient or cyclical unemployment due to economic downturn lack of demand in the economy associated with recession redundancies requires increase in aggregate demand

Seasonal Unemployment Some jobs are more focused on certain seasons tourism farming / fishing construction requires matching up of skills, & opposite season jobs Economists do not lay awake at night worrying about seasonal unemployment since there is little that can be done about this in a market economy

Real wage inflexibility (or classical unemployment) real wages above market equilibrium According to classical economics, unemployment should lead to a fall in real wages so should be temporary. So if wages do not fall, there will be classical unemployment. One cause of this is argued to be the minimum wage. Firms cannot pay less. Another cause could be workers refusing lower wages. This could be because of trade unions which oppose lower wages, or the existence of high benefits which may mean that workers do not need to accept low paid jobs. P S labour Min Wage D labour Qd Qs Q excess supply of labour = unemployment: firms don’t want as many workers at the higher wage

In pairs work out what kind of unemployment these are