The Causes of Unemployment

The Causes of Unemployment

• The causes of unemployment can be examined from the demand side and the supply side.
• Cyclical unemployment is unemployment arising from a lack of aggregate demand
  • This can be represented on a diagram by YFe (output when full employment) being the inelastic upwards slope of the AS curve. Unemployment will be the amount between this full-employed level and where AD currently meets AS.
• Structural unemployment is unemployment caused by the decline of certain industries and occupations due to changes in demand and supply.
  • g. employers may not want to hire certain people because they lack the right skills
  • Or there are job vacancies in one part of the country, but the unemployed are in another
    • The aforementioned are also occupation and geographical immobility of labour.
  • Technological unemployment arises when workers lose their jobs due to advances in technology
  • International unemployment is when a firm decides to outsource its labour, or households decide to buy imported goods instead of domestic goods.
  • Frictional unemployment is short term unemployment occurring when workers are in-between jobs.
    • This is always likely to exist in an economy