Introduction to Unemployment
Students should be able to identify different
types of Unemployment.
Students should demonstrate understanding
of the causes of unemployment.
Recognise the implications/cost of
unemployment : to the Individual &
Unemployment is an economic condition
where an individual or individuals seeking jobs
cannot manage to get themselves
economically employed. The level of
unemployment differs with economic
conditions and other market forces.
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Types of Unemployment
Demand-deficient or Cyclical unemployment
Frictional or Search unemployment
Demand-deficient or cyclical
Demand-deficient unemployment occurs when there is not enough demand to
employ all those who want to work.
Also known as cyclical unemployment - because it will vary with the economic cycle.
When the economy is booming, there will be lots of demand and so firms will be
employing large numbers of workers. Demand-deficient unemployment will at this
stage of the cycle be fairly low. If the economy slows down( recession), then demand
will begin to fall. When this happens firms will begin to lay workers off as they do not
need to produce so much. Demand-deficient unemployment rises.
Seasonal unemployment is fairly self explanatory. Father Christmas
tends to only be in demand for a short period of the year, and the
rest of the year would certainly be classified as seasonally
unemployed. Most other seasonal unemployment is less severe
than this, and tends to occur in certain industries. Industries that
suffer particularly are:
Hotel and catering
The effects of seasonal unemployment are often highly regionalised.
Areas such as Cornwall suffer a great deal from this type of
Frictional or search
When somebody loses their job (or chooses to leave it), they will have to look for
another one. If they are lucky they find one quite quickly, but they may be unlucky
and it may take some time. On average it will take everybody a reasonable period of
time as they search for the right job. This creates unemployment while they look. The
more efficiently the job market is matching people to jobs, the lower this form of
unemployment will be. However, if there is a lag in information and people don't get
to hear of jobs available that may suit them then frictional unemployment will be
The better the economy is doing, the lower this type of unemployment is likely to be.
This is because people will usually be able to find jobs that suit them more quickly
when the economy is doing well.
Structural unemployment occurs when the structure of industry changes. As an economy
develops over time the type of industries may well change. This may be because people's tastes
have changed or it may be because technology has moved on and the product or service is no
longer in demand. In the UK many industries that were once major employers have now all but
disappeared. Shipbuilding and mining are prime examples of this sort of trend, but there are also
many more minor examples as well. The extent of structural unemployment will depend on
Mobility of labour - if people are able to quickly switch jobs from a declining industry to a rapidly
growing one, then there will be less structural unemployment.
The pace of change in the economy - the faster the changes taking place in people's tastes
and demand and supply, the more structural unemployment there may be as industry has to
adapt more quickly to change.
The regional structure of industry - if industries that are dying are heavily concentrated in one
area, then this may make it much more difficult for people to find new jobs. Both the shipbuilding
and mining industries were heavily concentrated and some areas have taken many years to
adapt and reduce the level of structural unemployment.
Causes of Unemployment
Changes in the characteristic of the labour market: more women, older/young
workers, better education, better health standards.
Changes in Government policies: Minimum wage, Unemployment benefits.
Technological Changes: Increased use of machines and Robotics.
Economic Slowdown ( Recession).
For the Individual:
They may lose their self-esteem and confidence. This may affect their
motivation to work. The longer they are unemployed the more they may lose
their skills and this has to be bad for the economy as well.
On top of that these problems (and financial ones) often lead to the
unemployed being less healthy, and then the NHS picks up the bill.
The whole economy suffers from people being unemployed.
For the Economy:
Loss of output to the economy - the unemployed could be producing goods and
services and if they aren't, then GDP is lower than it could be.
Loss of tax revenue - unemployed people aren't earning and they therefore aren't
paying tax. The government has lost out.
Increase in government expenditure - the government has to pay out benefits to
support the unemployed. Along with the loss of tax this is a 'double whammy'.
Loss of profits - with higher employment firms are likely to do better and make
better profits. If they make less profit because of unemployment, they may have less
funds to invest.