3. Seasonal unemployment
Seasonal workers might be without paid jobs
due to the time of year when there are
seasonal changes in demand, production and
employment. season, but then let go after
the holidays.
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
6. Frictional unemployment
Frictional unemployment is caused by workers
seeking a better job or who are between
jobs. It also affects people who are new
entrants to the labour market such as school
leavers and college/university graduates. It
affects people who are on short-term
employment contracts.
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
7. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
FRICTIONAL UNEMPLOYMENT
Frictional unemployment is caused by workers seeking a better job or who are in a
time in-between jobs
It affects people who are new entrants to the labour market such as school leavers
and college/university graduates looking for their first job.
It also affects people who are on short-term employment contracts
There is always some amount of frictional unemployment in the labour market
regardless of the stage of a country’s business cycle. This helps provide a pool of
labour for employers.
Frictional unemployment can be reduced by making information on jobs more
available and making job search more affordable via cheaper transport or subsidies.
8. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
CAUSES OF FRICTIONAL UNEMPLOYMENT
School and college leavers
entering labour market
People searching for work
following a career change
Early-retired coming back
to the labour market
Mothers returning to
active jobs search
Incomplete information
can hamper job search
People on short-term
contracts
10. GIVE ME 2…
Reasons for the high level of
job vacancies in the UK
economy
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
11. GIVE ME 2…
Reasons for high level of job vacancies in the UK economy
1
2
Brexit: Brexit has made it harder to recruit workers from
the European Union causing shortages of workers in
sectors, such as hospitality, social care and construction.
Skills gaps and low pay: Skills shortages such as in
engineering and IT allied to relatively low pay in some
industries causing problems of recruitment & retention.
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
13. Structural unemployment
• Unemployment caused by lack of suitable skills for
jobs available; a result of de-industrialisation or other
structural changes in an economy.
• Often people stay unemployed because of
disincentive effects from the tax & welfare system.
• Structural unemployment can happen because of
other barriers to people finding work including
unaffordable housing, the high cost of childcare and
expensive transport services.
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
14. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
STRUCTURAL UNEMPLOYMENT
Structural unemployment is often caused by lack of suitable skills for jobs
available; a result of de-industrialisation (decline in manufacturing) or
other structural changes in an economy such as automation & robotics.
This links closely to the concept of occupational immobility of labour
Often people remain unemployed because of disincentive effects including
the unemployment trap.
Structural unemployment can happen because of other barriers to people
finding work including unaffordable housing, the high cost of childcare and
expensive transport services.
15. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
CAUSES OF STRUCTURAL UNEMPLOYMENT
New jobs often require new
skills – cost of re-training
Unaffordable housing (both
to buy and to rent)
Employer discrimination
against some groups
Erosion of skills from long
term unemployment
Impact of automation on
certain occupations
Effect of welfare system on
work incentives
16. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
WHAT IS THE UNEMPLOYMENT TRAP?
The unemployment trap is a frustrating cycle that can make it difficult for
people who are unemployed to find work.
Being unemployed can lead to a loss of skills and experience, which can make
it harder to get a job. It can also lead to a loss of confidence and motivation,
which can further hinder a person’s job search.
Additionally, employers may be less likely to hire someone who has been
unemployed for a long time, as they may view them as having lower
productivity.
The tax and welfare system can also contribute to the unemployment trap
especially in relatively low-paid jobs.
17. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
WHAT IS HUMAN CAPITAL?
Human capital refers to the knowledge, skills, and abilities that people have
that enable them to produce goods and services.
It's basically the intellectual and behavioural assets that people have that
enable them to be productive and contribute to economic growth.
This can include things like education, training, experience, and personal
qualities like creativity, problem-solving abilities, and emotional intelligence.
The more human capital a person has, the more valuable they are to an
employer, and the more productive they are likely to be.
Improving human capital is critical to reducing structural unemployment
19. Cyclical Unemployment
Cyclical unemployment is involuntary
unemployment due to a lack of aggregate
demand for goods and services.
This is also known as Keynesian
unemployment or demand-deficient
unemployment.
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
20. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
CAUSES OF CYCLICAL UNEMPLOYMENT
Cyclical unemployment is unemployment caused by the ups and downs of the
business cycle (also known as the economic cycle).
When an economy is booming, demand for goods and services increases,
leading to more hiring. The employment rate rises as real GDP expands.
But when the economy slows down or goes into recession, demand decreases
and companies lay off workers, leading to cyclical unemployment.
Keynesian economics places a lot of emphasis on the role of aggregate
demand in influencing unemployment. Keynes argued that during economic
downturns, aggregate demand decreases and firms reduce their production
and lay off workers. This can lead to a negative multiplier effect.
21. TUTOR2U.NET/ECONOMICS
ECONOMIC GROWTH
ECONOMIC GROWTH IN THE UK ECONOMY
-15%
-10%
-5%
0%
5%
10% 1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
Annual
growth
Annual % change in real GDP for the UK, source: ONS
Cyclical unemployment is closely tied to the phases of the economic cycle, particularly
during periods of recession. When the economy is in a recession, aggregate demand
decreases, leading to reduced production and a decrease in the demand for labour.
22. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
NUMBER OF PEOPLE MADE REDUNDANT IN THE UK
0
50
100
150
200
250
300
350
400
450
May
95
Jan
96
Sep
96
May
97
Jan
98
Sep
98
May
99
Jan
00
Sep
00
May
01
Jan
02
Sep
02
May
03
Jan
04
Sep
04
May
05
Jan
06
Sep
06
May
07
Jan
08
Sep
08
May
09
Jan
10
Sep
10
May
11
Jan
12
Sep
12
May
13
Jan
14
Sep
14
May
15
Jan
16
Sep
16
May
17
Jan
18
Sep
18
May
19
Jan
20
Sep
20
May
21
Jan
22
Sep
22
May
23
Number
of
redundancies
in
thousands
Average number of people made redundant in the UK from May 1995 to June 2023 (in 1,000s)
Redundancies tend to rise when the economy enters a
cyclical downturn or when there is an external shock.
23. How can we show
demand-deficient
unemployment using an
AD-AS analysis diagram?
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
24. GPL
Real GDP
GPL1
SRAS
Y1
AD1
• Cyclical unemployment is due to
a lack of demand for goods and
services.
• In a recession, many firms
reduce employment to cut their
costs – this is called “labour
shedding” or “down-sizing”
• In a recession, real national
output contracts and this then
leads to an increase in spare
productive capacity. Firms then
cut their workforce and cyclical
unemployment rises.
25. GPL
Real GDP
GPL1
SRAS
Y1
AD1
AD2
Y2
• Cyclical unemployment is due to
a lack of demand for goods and
services.
• In a recession, many firms
reduce employment to cut their
costs – this is called “labour
shedding” or “down-sizing”
• In a recession, real national
output contracts and this then
leads to an increase in spare
productive capacity. Firms then
cut their workforce and cyclical
unemployment rises.
GPL2
26. GPL
Real GDP
GPL1
SRAS
Y1
AD1
AD2
Y2
• Cyclical unemployment is due to
a lack of demand for goods and
services.
• In a recession, many firms
reduce employment to cut their
costs – this is called “labour
shedding” or “down-sizing”
• In a recession, real national
output contracts and this then
leads to an increase in spare
productive capacity. Firms then
cut their workforce and cyclical
unemployment rises.
GPL2
LRAS
YP
27. GPL
Real GDP
GPL1
SRAS
Y1
AD1
AD2
Y2
• Cyclical unemployment is due to
a lack of demand for goods and
services.
• In a recession, many firms
reduce employment to cut their
costs – this is called “labour
shedding” or “down-sizing”
• In a recession, real national
output contracts and this then
leads to an increase in spare
productive capacity. Firms then
cut their workforce and cyclical
unemployment rises.
GPL2
LRAS
YP
Negative
Output Gap
28. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
WHAT IS REAL WAGE UNEMPLOYMENT?
Classical real-wage unemployment is a concept that comes from the classical school of
economic thought (hence the "classical" part).
It's the idea that unemployment is caused by wages being too high relative to the
productivity of workers.
In other words, employers are unwilling to hire workers at the current wage level
because they believe the workers aren't worth that much.
This can occur when labour supply exceeds labour demand, or when there is a surplus of
workers in a particular industry.
Classical economists believe that if real wages were allowed to adjust downward,
unemployment would disappear because workers would be willing to work for less
32. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
WHAT IS REAL WAGE RIGIDITY?
Rage rigidity happens when workers are reluctant to see their real
wages fall during an economic downturn.
Real wages drop when nominal wages don’t rise as fast as prices
Keynesians argue that wages can be "sticky" or slow to adjust
downward because of long-term labour contracts, trade union
collective bargaining agreements, and social norms about fair pay.
Workers and employers may be reluctant to renegotiate contracts or
reduce wages during economic downturns, leading to persistent real
wage levels that are too high relative to the demand for labour.
33. 1. Workers made redundant from a steel plant due to a downturn in construction
2. A graduate who spends six months searching for work after leaving university
3. A mother actively searching for work but unable to accept a job offer because of
the high cost of childcare
4. An unemployed farmer finds it difficult to find new work in high-tech sectors
5. People working in aircraft freight businesses lose their jobs because of a contraction
in the volume of global trade
6. Some jobs on a manufacturing production line are replaced by robots
WHAT TYPE OF UNEMPLOYMENT IN THESE EXAMPLES?
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
34. 1. Workers made redundant from a steel plant due to a downturn in construction (cyclical)
2. A graduate who spends six months searching for work after leaving university
(frictional)
3. A mother actively searching for work but unable to accept a job offer because of the
high cost of childcare (structural)
4. An unemployed farmer finds it difficult to find new work in high-tech sectors
(structural)
5. People working in aircraft freight businesses lose their jobs because of a contraction in
the volume of global trade (cyclical)
6. Some jobs on a manufacturing production line are replaced by robots (structural)
WHAT TYPE OF UNEMPLOYMENT IN THESE EXAMPLES?
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
35. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
VOLUNTARY UNEMPLOYMENT
Voluntary Unemployment: This occurs when individuals
choose not to work for various reasons, even though
suitable job opportunities are available to them.
Reasons: People may be voluntarily unemployed for a range
of personal reasons. Some common examples include taking
a break to pursue education, raising children, pursuing early
retirement, enjoying leisure, or taking time off for travel or
personal interests.
36. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
INVOLUNTARY UNEMPLOYMENT
Definition: Involuntary unemployment occurs when
individuals want to work and are actively seeking
employment but are unable to find suitable job
opportunities or are temporarily laid off from work.
Reasons: Involuntary unemployment is typically the result of
external factors beyond an individual's control. These factors
may include recession, job market conditions, lack of
available jobs in a specific industry, or job loss due to
company closures or downsizing.
37. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
THE NATURAL RATE OF UNEMPLOYMENT
The natural rate of unemployment represents the level of unemployment that exists
in an economy when it is operating at full potential or in a state of long-term
equilibrium.
The natural rate of unemployment is often described as the level of unemployment
that exists when the labour market is in equilibrium.
The natural rate of unemployment consists of two main components:
Structural Unemployment: Structural factors in the labor market, such as changes in
technology, shifts in demand for certain skills, and regional disparities in
employment opportunities.
Frictional Unemployment: Results from the time it takes for individuals to transition
between jobs or for job seekers to find suitable employment opportunities.
38. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
NATURAL RATE OF UNEMPLOYMENT - DIAGRAM
Real wage
Employment
Aggregate Labour Supply
Aggregate Labour Demand
The natural rate of
unemployment is the
rate of unemployment
when the labour
market is in
equilibrium.
41. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
NATURAL RATE OF UNEMPLOYMENT - DIAGRAM
Real wage
Employment
Aggregate Labour Supply
Aggregate Labour Demand
E1
RW1
Labour Force
E2
The natural rate of
unemployment is
the difference
between those
who would like a
job at the current
wage rate – and
those who are
willing and able to
take a job. In the
diagram, it is the
level (E2-E1)
42. TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
NATURAL RATE OF UNEMPLOYMENT - DIAGRAM
Real wage
Employment
Aggregate Labour Supply
Aggregate Labour Demand
E1
RW1
Labour Force
E2
A B
Equilibrium level of
employment is E1
At this level of
employment, there is
unemployment of AB.
43. An individual who has just finished a period of training and is now searching
for a job is part of the
A Frictionally unemployed
B Employed labour force
C Structurally unemployed
D Cyclically unemployed
An individual who has just finished a period of training and is now searching
for a job is part of the
* A Frictionally unemployed
* B Employed labour force
* C Structurally unemployed
* D Cyclically unemployed
1
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
44. Which type of unemployment occurs if an aircraft maintenance firm closes
because of recession?
A Seasonal
B Frictional
C Structural
D Cyclical
Which type of unemployment occurs if an aircraft maintenance firm closes
because of recession?
* A Seasonal
* B Frictional
* C Structural
* D Cyclical
2
TUTOR2U.NET/ECONOMICS
UNEMPLOYMENT
Editor's Notes
There is always some amount of frictional unemployment in the labour market regardless of the stage of a country’s business cycle.
