1. Causes of unemployment

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

3. 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)

4. 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

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

6. 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

7. 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

8. In pairs work out what kind of unemployment these are